Liang Company began operations on January 1, 2016. During its first two years, t

Question

Liang Company began operations on January 1, 2016. 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. 2016 a. Sold $1,345,200 of merchandise (that had cost $982,900) on credit, terms n/30. b. Wrote off $18,400 of uncollectible accounts receivable c. Received $674,200 cash in payment of accounts receivable. d. In adjusting the accounts on December 31, the company estimated that 1.70% of accounts receivable will be uncollectible. 2017 e. Sold $1,502,700 of merchandise (that had cost $1,303,300) on credit, terms n/30 f. Wrote off $33,700 of uncollectible accounts receivable g. Received $1,395,200 cash in payment of accounts receivable h, 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 2016 and 2017 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.)

Explanation / Answer

2016

Balance of Acc. Rec. on 12/31 = 1345200 - 18400 - 674200 = 652600

Estimated bad debts on 12/31 = 652600 x 1.70% = 11094.20 = 11094

Balance of allowance for doubtful A/c on 12/31 = 18400 - 18400 + 11094 = $11094

2017

Bad debts to be written of for $33700 = $33700 - $11094 = $22606

(11094 already w/off as bad debts expenses in last year so will be reduced from $33700)

Balance of A/c Receivable as on 12/31 = 652000 + 1502700 - 33700 - 1395200 = 726400

Bad debts as on 12/31 = 726400 x 1.70% = $12348.80 =$12349

Balance of allowance for doubtful a/c as on 12/31 = 11094 + 22606 - 33700 + 12349 = $12349

S.No. Accounts Debit Credit 1 Account Receivable 1345200 Sales 1345200 (Sales recognised) 2 Cost of goods sold 982900 Inventory 982900 (inventory transfred to COGS) 3 Bad Debts A/c 18400 Allowance for Doubtful A/c 18400 (allowance created to write of bad debts) 4 Alowance for doubtful A/c 18400 Accounts Receivable 18400 (A/c Rec. w/off from allowance) 5 Cash A/c 674200 Accounts Receivable 674200 (cash received from A/c Rec.) 6 Bad Debts 11094 Allowance for doubtful A/c 11094 (1.70% of outstanding Acc. Rec. allowance created)

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