Question

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Liang Company began operations on January 1, 2017. During its first two years, the company completed...

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

  1. Sold $1,353,300 of merchandise (that had cost $977,400) on credit, terms n/30.
  2. Wrote off $18,200 of uncollectible accounts receivable.
  3. Received $666,400 cash in payment of accounts receivable.
  4. In adjusting the accounts on December 31, the company estimated that 1.70% of accounts receivable will be uncollectible.


2018

  1. Sold $1,545,000 of merchandise on credit (that had cost $1,256,900), terms n/30.
  2. Wrote off $26,400 of uncollectible accounts receivable.
  3. Received $1,329,900 cash in payment of accounts receivable.
  4. In adjusting the accounts on December 31, the company estimated that 1.70% of accounts receivable will be uncollectible.


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.)

Solutions

Expert Solution

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


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