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

a. Sold $1,354,000 of merchandise (that had cost $981,600) on credit terms n/30.

b. Wrote off $21,700 of uncollectible accounts receivable.

c. Received $665,300 cash in payment of accounts receivable.

d. In adjusting the accounts on December 31, the company estimated that 2.5% of accounts receivable would be uncollectible

Year 2:

e. Sold $1,542,900 of merchandise(that had cost $1,342,300) on credit, terms n/30.

f. Wrote off $30,300 of uncollectible accounts receivable.

g. Received $1, 284,000 cash in payment of accounts receivable.

h. In adjusting the accounts on December 31, the company estimated that 2.50% of accounts receivable would be uncollectible.

Prepare journal entries used to record Liang's Year 1and 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 ).

Answer 1

		Debit	Credit
(a)	Accounts receivable Dr.	1,354,000
	To sales		1,354,000
a(2)	Cost of Goods Sold	981,600
	Merchandise Inventory		981,600
b	Allowance for doubtful Accounts	21,700
	Accounts Receivable		21,700
c	Cash	665,300
	Accounts Receivable		665,300
d	Bad Debts Expense	38,375
	Allowance for Doubtful Accounts		38,375
	[(1354,000 - 21,700 - 665,300) x 2.5%] + 21,700 = 38,375
e(1)	Accounts Receivable	1,542,900
	Sales		1,542,900
e(2)	Cost of Goods Sold	1,342,300
	Merchandise Inventory		1,342,300
f	Allowance for doubtful Accounts	30,300
	Accounts Receivable		30,300
g	Cash	1,284,000
	Accounts Receivable		1,284,000
h	Bad Debts Expense	36,015
	Allowance for Doubtful Accounts		36,015
	[(1,354,000 - 21,700 - 665,300 + 1,542,900 - 30,300 - 1,284,000) x 2.5%] + 30,300 + 21,700 - 38,375 = 36,015