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 $1,352,200 of merchandise (that had cost $980,100) on credit, terms n/30.

Wrote off $21,900 of uncollectible accounts receivable.

Received $674,600 cash in payment of accounts receivable.

In adjusting the accounts on December 31, the company estimated that 1.60% of accounts receivable would be uncollectible.

Year 2

Sold $1,538,800 of merchandise (that had cost $1,328,900) on credit, terms n/30.

Wrote off $34,000 of uncollectible accounts receivable.

Received $1,182,700 cash in payment of accounts receivable.

In adjusting the accounts on December 31, the company estimated that 1.60% 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.)

I understand it all but cannot figure out how to do this portion?

In adjusting the accounts on December 31, the company estimated
that 1.60% of accounts receivable would be uncollectible
transacton	General Ledger	debit	credit
a(1)

Answer 1

	TRANSACTION	GENERAL LEDGER	DEBIT	CREDIT
	A 1 )	accounts receivable	$ 1,352,200
		sales revenue		$ 1,352,200
		( to record sales on account for the year )
	a2)	cost of goods sold	$ 980,100
		inventory		$ 980,100
		( to record cost of goods sold in the year )
	b)	allowance for doubt ful accounts	$ 21,900
		accounts receivable		$ 21,900
		( to record to writeoff accounts deemed uncollectible )
	c )	cash	$ 674,600
		accounts receivable		$ 674,600
		( to record collections from customers for the year )
	d)	bad debts   ( note 1 )	$ 32,391.20
		allowance for doubtful accounts		$ 32,391.20
		( to record adjust allowance for doubtful accounts to 1.60 % of accounts receivables )
	e 1 )	accounts receivables	$ 1,538,800
		sales revenue		$ 1,538,800
		(to record sales on account for the year )
	e 2 )	cost of goods sold	$ 1,328,900
		inventory		$ 1,328,900
		( to record cost of goods sold in the year )
	f)	allowance for doubt ful accounts	$ 34,000
		accounts receivable		$ 34,000
		( to record to writeoff accounts deemed uncollectible )
	g)	cash	$ 1,182,700
		accounts receivable		$ 1,182,700
		( to record collections from customers for the year )
	h)	bad debts   ( note 2 )	$ 39,153.60
		allowance for doubtful accounts		$ 39,153.60
		( to record adjust allowance for doubtful accounts to 1.60 % of accounts receivables )
	explanation :
	note 1 :
	the amount of the adjustment is :
	beginning balance allowance balance	$ 0
	journal entry ( b)	$ 21,900 ( debit )
		$ 21,900 ( debit )
	desired ending balance	$ 10,491.20 ( credit )
		( $ 1,352,200 - $ 21,900- $ 674,600 = $ 655,700 )
		$ 655,700 * 1.60 % = $ 10,491.20
	journal to adjust the balance	$ 32,391.20 ( $ 21,900 + $ 10,491.20 )
	note 2:
	the amount of the adjustment is :
	beginning balance allowance balance	$ 10,491.20 ( credit )
	journal entry ( f)	$ 34,000 ( debit )
		$ 23,508.80 ( debit )
	desired ending balance	$ 15,644.80 ( credit )
		( $ 655,700 + $ 1,538,800 -$ 34,000 - $ 1,182,700 = $ 977,800 )
		$ 977,800 * 1.60 % = $ 15,644.80
	journal to adjust the balance	$ 39,153.60   ( $ 23,508.80 + $ 15,644.80 )