Question

Problem 7-4A Accounts receivable transactions and bad debts adjustments LO C1, P2, P3 Liang Company began operations in Year 1. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows. Year 1 a. Sold $1,350,000 of merchandise (that had cost $984,400) on credit, terms n/30. b. Wrote off $18,800 of uncollectible accounts receivable. c. Received $667,000 cash in payment of accounts receivable. d. In adjusting the accounts on December 31, the company estimated that 2.10% of accounts receivable would be uncollectible. Year 2 e. Sold $1,511,500 of merchandise (that had cost $1,331,500) on credit, terms n/30. f. Wrote off $27,500 of uncollectible accounts receivable. g. Received $1,223,200 cash in payment of accounts receivable. h. In adjusting the accounts on December 31, the company estimated that 2.10% of accounts receivable would be uncollectible. Required: Prepare journal entries to record Liang's Year 1 and Year 2 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable.) (Round your intermediate calculations to the nearest dollar.)

Answer 1

Transaction General Journal Debit Credit a (1) Accounts receivable 1,350,000 Sales revenue 1,350,000 Cost of goods sold Merchandise inventory a (2) 984,400 984,400 Allowance for doubtful accounts 18,800 Accounts receivable 18,800 Cash 667,000 C Accounts receivable 667,000 Bad debt expense 32,748 Allowance for doubtful accounts 32,748 Working notes: Accounts receivable bal 1,350,000-18,800-667,000-664,200 Uncollecible amount 2.10% x 664,200 13,948 Bad debt expense 13,948+18,800 32,748