Question

Problem 7-4A Accounts receivable transactions and bad debts adjustments LO C1, P2, P3

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

1. Sold $1,354,400 of merchandise (that had cost $981,400) on credit, terms n/30.
2. Wrote off $18,900 of uncollectible accounts receivable.
3. Received $665,900 cash in payment of accounts receivable.
4. In adjusting the accounts on December 31, the company estimated that 2.00% of accounts receivable would be uncollectible.

Year 2

5. Sold $1,544,800 of merchandise (that had cost $1,312,400) on credit, terms n/30.
6. Wrote off $26,700 of uncollectible accounts receivable.
7. Received $1,257,100 cash in payment of accounts receivable.
8. In adjusting the accounts on December 31, the company estimated that 2.00% 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.)

a(1)	Accounts receivable	1,354,400
		Sales		1,354,400
2	a(2)	Cost of good sold	981,400
		Merchandise inventory		981,400
3	b.	Allowance for doubtful accounts	18,900
		Accounts receivable		18,900
4	c.	Cash	665,900
		Accounts receivable		665,900
5	d.	Bad debts expense
		Allowance for doubtful accounts

Accounts receivable	1,544,800
		Sales		1,544,800
2	e(2)	Cost of good sold	1,312,400
		Merchandise inventory		1,312,400
3	f.	Allowance for doubtful accounts	26,700
		Accounts receivable		26,700
4	g.	Cash	1,257,100
		Accounts receivable		1,257,100
5	h.	Bad debts expense
		Allowance for doubtful accounts

Answer 1

1.

Liang Company
Journal Entries (Year 1)
Date	Particulars	Debit	Credit
1	Accounts Receivable Dr	$13,54,400
	To Sales Revenue		$13,54,400
	(To record sales on account)
2	Cost of goods sold Dr	$9,81,400
	To Inventory		$9,81,400
	(To record cost of goods sold)
3	Allowance for Doubtful Accounts Dr	$18,900
	To Accounts Receivable		$18,900
	(To record write off of uncollectible accounts)
4	Cash Dr	$6,65,900
	To Accounts Receivable		$6,65,900
	(To record cash collection)
5	Bad Debt Expense Dr [($1354400- $18900 - $665900)*2.00% + $18900]	$32,292
	To Allowance for Doubtful accounts		$32,292
	(To record bad debt expense)

2.

Liang Company
Journal Entries (Year 2)
Date	Particulars	Debit	Credit
1	Accounts Receivable Dr	$15,44,800
	To Sales Revenue		$15,44,800
	(To record sales on account)
2	Cost of goods sold Dr	$13,12,400
	To Inventory		$13,12,400
	(To record cost of goods sold)
3	Allowance for Doubtful Accounts Dr	$26,700
	To Accounts Receivable		$26,700
	(To record write off of uncollectible accounts)
4	Cash Dr	$12,57,100
	To Accounts Receivable		$12,57,100
	(To record cash collection)
5	Bad Debt Expense Dr [($930600*2.00%) + $26700 - $32292]	$13,020
	To Allowance for Doubtful accounts		$13,020
	(To record bad debt expense)