Question

Liang Company began operations on January 1, 2015. 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.

2015

1. Sold $1,348,600 of merchandise (that had cost $980,800) on credit, terms n/30.
2. Wrote off $19,500 of uncollectible accounts receivable.
3. Received $665,200 cash in payment of accounts receivable.
4. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible.

2016

5. Sold $1,502,800 of merchandise (that had cost $1,260,400) on credit, terms n/30.
6. Wrote off $32,500 of uncollectible accounts receivable.
7. Received $1,267,700 cash in payment of accounts receivable.
8. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible.

Required:

Prepare journal entries to record Liang’s 2015 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 amount.)

Answer 1

Solution:

Liang Company
Journal Entries (2015)
Date	Particulars	Debit	Credit
1	Accounts Receivable Dr	$13,48,600
	To Sales Revenue		$13,48,600
	(To record sales on account)
2	Cost of goods sold Dr	$9,80,800
	To Inventory		$9,80,800
	(To record cost of goods sold)
3	Allowance for Doubtful Accounts Dr	$19,500
	To Accounts Receivable		$19,500
	(To record write off of uncollectible accounts)
4	Cash Dr	$6,65,200
	To Accounts Receivable		$6,65,200
	(To record cash collection)
5	Bad Debt Expense Dr [($663900*2.20%) + $19500]	$34,106
	To Allowance for Doubtful accounts		$34,106
	(To record bad debt expense)

Liang Company
Journal Entries (2016)
Date	Particulars	Debit	Credit
1	Accounts Receivable Dr	$15,02,800
	To Sales Revenue		$15,02,800
	(To record sales on account)
2	Cost of goods sold Dr	$12,60,400
	To Inventory		$12,60,400
	(To record cost of goods sold)
3	Allowance for Doubtful Accounts Dr	$32,500
	To Accounts Receivable		$32,500
	(To record write off of uncollectible accounts)
4	Cash Dr	$12,67,700
	To Accounts Receivable		$12,67,700
	(To record cash collection)
5	Bad Debt Expense Dr [($866500*2.20%) + $32500 - $34106]	$17,457
	To Allowance for Doubtful accounts		$17,457
	(To record bad debt expense)