Question

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 Sold $1,349,500 of merchandise (that had cost $984,600) on credit, terms n/30. Wrote off $18,100 of uncollectible accounts receivable. Received $673,000 cash in payment of accounts receivable. In adjusting the accounts on December 31, the company estimated that 1.40% of accounts receivable would be uncollectible. Year 2 Sold $1,548,700 of merchandise (that had cost $1,337,800) on credit, terms n/30. Wrote off $28,400 of uncollectible accounts receivable. Received $1,391,700 cash in payment of accounts receivable. In adjusting the accounts on December 31, the company estimated that 1.40% 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

0 Account Receivables $1349500 sales Revenue divisioo fauon $134arvo OOLD @ Cost of goods sold $984600 merchandise inventory p ro 120 $984600. (3 Allowances for doubtful sors Accounts Account receivables a $18100 DA $18100.

(1) $673000 Cash Bank Account Receivables $ 673000 oor Ending Balance in Ale Receivables OWS 134 8500 – 18100 - 673000 = $ 6.58400 Bool debts $658400 X 1.4%. + 18100 = 9217.6 +18100 De 27318 Bad debt Expenses $27318 ano Allowances for doubtful Sous accounts PADI $27318.

year ② 0 Account Receivables Sales Revenue & 1548700 $1548700. o cost of goods sold Merchandise inventory $1337800 - $1337800. © $28400 Allowances to doubtful - Accounts Account Receivables $28400 ☺ cash / Bank 1 Account Receivables $1391700 $1391700 Ending balance of receivables. $65840o Copening) +1548700 -28400 1391700 a $ 787000) 1.4% ( 787000) + 28400 = "11018 +28400 = 39418 e opening balance in ellowance for doubt ful Al $ 9218 still need to be created is $ 30200 (39418-9218) Bod debt Expenses Allowances for doubtful - Accounts $30200 $30200.

Allowance for Dabibt ful Accounts in year 1. as written off - 18100 at the year End t C 9218 27318 out of 27318 we have written off 18100. Balance left is 9218. In year 2 Tot allowances is $39418. opening already existing for 9218. So we need to create Bad debts expenses - only for $30200 [39418-9218)