Question

Exercise 3-2

Prepare journal entries for the Russell Company’s 2011 and 2012 transactions summarized below and the company’s year-end adjustments to Bad Debts Expense. Round off all amounts to the nearest dollar.
Note: The company uses a perpetual inventory system.

Summarized Transactions

The Russell Company began operations on January 1, 2011, and completed several transactions that involved credit sales, accounts receivable collections, and bad debts.
2011
•   Sold merchandize that cost $1,350,000, on credit, for $1,575,000. Terms n/30.
•   Wrote off $18,100 of accounts receivable that were uncollectible.
•   Received cash in the amount of $822,500 as accounts receivables payments.
•   In performing year-end account adjustments, the company estimated that 2 percent of accounts receivables will not be collectible.

[Create the 2011 journal entries here.]

2012
•   Sold merchandize that cost $1,325,000, on credit, for $1,592,000. Terms n/30.
•   Wrote off $24,500 of accounts receivable that were uncollectible.
•   Received cash in the amount of $1,428,300 as accounts receivables payments.
•   In performing year-end account adjustments, the company estimated that 2 percent of accounts receivables will not be collectible.

[Create the 2012 journal entries here.]

Answer 1

2011
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Accounts receivable			1575000
	Sales revenue				1575000
	(for sales made)
b.	Cost of goods sold			1350000
	Merchandise inventory			1350000
	(for cost of goods sold)
c.	Allowance for uncollectible account	18100
	Accounts receivable			18100
	(for amount write off)
d.	Cash				822500
	Accounts receivable			822500
	(for cash collected)
e.	Bad debts expense			32,788
	Allowance for uncollectible account		32,788
	(for bad debts expense)
Note:
Computation of Bad debts expense:
Sales made			15,75,000
Less: Cash collected			-8,22,500
Less: Amount written off		-18,100
Accounts receivable-balance Gross	7,34,400
Required balance of Allowance @2%	14688
Add: Amount written off		18,100
Bad debts expenses			32,788
2012
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Accounts receivable			1592000
	Sales revenue				1592000
	(for sales made)
b.	Cost of goods sold			1325000
	Merchandise inventory			1325000
	(for cost of goods sold)
c.	Allowance for uncollectible account	24500
	Accounts receivable			24500
	(for amount write off)
d.	Cash				1428300
	Accounts receivable			1428300
	(for cash collected)
e.	Bad debts expense			27,284
	Allowance for uncollectible account		27,284
	(for bad debts expense)
Note:
Computation of Bad debts expense:
Beginning Accounts receivable balance	734400
Sales made			15,92,000
Less: Cash collected			-14,28,300
Less: Amount written off		-24,500
Accounts receivable-balance Gross	8,73,600
Required balance of Allowance @2%	17472
Balance in Allowance
Beginning balance of Allowance		14,688
Less: Amount written off		-24,500
Debit balance of Allowance		9812
Add: Required balance of Allowance	17472
Bad debts expense			27284