In: Accounting
Liang Company began operations on January 1, 2017. 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.
2017
2018
Required:
Prepare journal entries to record Liang’s 2017 and 2018 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 :-
Journal entries to record Liang’s 2017 summarized transactions are as follows :-
Date | Particular | Debit | Credit |
2017 | Account Receivable A/c Dr. | $1,353,300 | |
To Sales A/c | $1,353,300 | ||
(To record Sold $1,353,300 of merchandise on credit) | |||
2017 | Cost of goods sold A/c | $977,400 | |
To Merchandise Inventory A/c | $977,400 | ||
(To record Cost of goods sold) | |||
2017 | Allowance for Doubtful Debt A/c Dr. | $18,200 | |
To Account Receivable A/c | $18,200 | ||
(To record the write off) | |||
2017 | Cash A/c Dr. | $666,400 | |
To Account Receivable A/c | $666,400 | ||
(To record the collection of cash on account) | |||
2017 | Bad debts A/c Dr. (Note -1) | $29,568 | |
To Allowance for doubtful Debt A/c | $29,568 | ||
(To record year end adjustment of Account Receivable) |
Note 1 :-
To find out 1.70% of accounts receivable will be uncollectible we first calculated the Ending Balance of Accounts Receivable.
Account Receivable | |||
Particular | Amount | Particular | Amount |
To Sales Revenue | $1,353,300 | By Allowance for doubtful Debt A/c | $18,200 |
By Cash A/c | $666,400 | ||
By Ending Balance A/c | $668,700 | ||
Total | $1,353,300 | Total | $1,353,300 |
Uncollectible Amount at end of year = Ending Balance of Account Receivable × 1.70%
Uncollectible Amount at end of year = $668,700 × 1.70 % = $11,368
Bad debt Expense for the year 2017 = Uncollectible Amount during 2017 + Uncollectible Amount at end of year
Bad debt Expense for the year 2017 = $ 18,200 + $11,368
Bad debt Expense for the year 2017 = $29,568
Journal entries to record Liang’s 2018 summarized transactions are as follows :-
Date | Particular | Debit | Credit |
2018 | Account Receivable A/c Dr. | $1,545,000 | |
To Sales A/c | $1,545,000 | ||
(To record Sold $1,545,000 of merchandise on credit) | |||
2018 | Cost of goods sold A/c | $1,256,900 | |
To Merchandise Inventory A/c | $1,256,900 | ||
(To record Cost of goods sold) | |||
2018 | Allowance for Doubtful Debt A/c Dr. | $26,400 | |
To Account Receivable A/c | $26,400 | ||
(To record the write off) | |||
2018 | Cash A/c Dr. | $1,329,900 | |
To Account Receivable A/c | $1,329,900 | ||
(To record the collection of cash on account) | |||
2018 | Bad debts A/c Dr. (Note -2) | $29,608 | |
To Allowance for doubtful Debt A/c | $29,608 | ||
(To record year end adjustment of Account Receivable) |
Note 2:-
To find out 1.70% of accounts receivable will be uncollectible we first calculated the Ending Balance of Accounts Receivable.
Account Receivable | |||
Particular | Amount | Particular | Amount |
To Beginning balance | $668,700 | By Allowance for doubtful Debt A/c | $26, 400 |
To Sales | $1,545,000 | By Cash A/c | $1,329,900 |
By Ending Balance A/c | $857,400 | ||
Total | $2,213,700 | Total | $2,213,700 |
Uncollectible Amount at end of year = Ending Balance of Account Receivable × 1.70%
Uncollectible Amount at end of year = $857, 400 × 1.70 % = $14,576
Bad debt Expense for the year 2018 = Uncollectible Amount during 2018 + Uncollectible Amount at end of year - Uncollectible Amount at the end of 2017
Bad debt Expense for the year 2018 = $ 26,400 + $14,576 - $11,368
Bad debt Expense for the year 2018= $29,608