Question

Liang Company began operations on January 1, 2016. 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. 2016 Sold $1,354,000 of merchandise (that had cost $980,800) on credit, terms n/30. Wrote off $20,600 of uncollectible accounts receivable. Received $674,700 cash in payment of accounts receivable. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible. 2017 Sold $1,530,400 of merchandise (that had cost $1,255,500) on credit, terms n/30. Wrote off $27,700 of uncollectible accounts receivable. Received $1,183,800 cash in payment of accounts receivable. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible.

Answer 1

Solution:

Liang Company
Journal Entries (2016)
Date	Particulars	Debit	Credit
1	Accounts Receivable Dr	$13,54,000
	To Sales Revenue		$13,54,000
	(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	$20,600
	To Accounts Receivable		$20,600
	(To record write off of uncollectible accounts)
4	Cash Dr	$6,74,700
	To Accounts Receivable		$6,74,700
	(To record cash collection)
5	Bad Debt Expenses Dr [$658700*2.20% + $20600]	$35,091
	To Allowance for Doubtful accounts		$35,091
	(To record bad debt expense)

Liang Company
Journal Entries (2017)
Date	Particulars	Debit	Credit
1	Accounts Receivable Dr	$15,30,400
	To Sales Revenue		$15,30,400
	(To record sales on account)
2	Cost of goods sold Dr	$12,55,500
	To Inventory		$12,55,500
	(To record cost of goods sold)
3	Allowance for Doubtful Accounts Dr	$27,700
	To Accounts Receivable		$27,700
	(To record write off of uncollectible accounts)
4	Cash Dr	$11,83,800
	To Accounts Receivable		$11,83,800
	(To record cash collection)
5	Bad Debt Expense Dr [($977600*2.20%) + $27700 - $35091]	$14,116
	To Allowance for Doubtful accounts		$14,116
	(To record bad debt expense)