Liang Company began operations on January 1, 2016. During its first two years, t
ID: 2566408 • Letter: L
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
Sold $1,346,500 of merchandise (that had cost $984,100) on credit, terms n/30.
Wrote off $21,900 of uncollectible accounts receivable.
Received $674,000 cash in payment of accounts receivable.
In adjusting the accounts on December 31, the company estimated that 1.70% of accounts receivable will be uncollectible.
2017
Sold $1,570,800 of merchandise (that had cost $1,324,900) on credit, terms n/30.
Wrote off $29,900 of uncollectible accounts receivable.
Received $1,181,000 cash in payment of accounts receivable.
In adjusting the accounts on December 31, the company estimated that 1.70% of accounts receivable will be uncollectible.
2016:
2017:
View transaction list e on credit, terms n/30. 2 Record cost of goods sold, $984,100. 3 Wrote off $21,900 of uncollectible accounts receivable. 4 Received $674,000 cash in payment of accounts receivable. 5 In adjusting the accounts on December 31, the company estimated that 1.70% of accounts receivable will be uncollectibleExplanation / Answer
2016 JOURNAL ENTRIES For Sale: Account receivable DR. 1346500 Sales Revenue Cr. 1346500 For cost of Goods sold Cost of Goods Sold expense Dr. 984100 Purchases Cr. 984100 For wrote off uncollectible accounts Bad debts Dr. 21900 Accounts receivable Cr. 21900 Received payment from accounts receivable Cash Account Dr. 674,000 Accounts receivable Cr. 674,000 For Adjusting the accounts for uncollectible estimate Bad debts expense Dr. 11060 Allowance for doubtful debts Cr. 11060 (Accounts Receivable balance = 1346500-21900-674000= 650,600 @1.7%) 2017 JOURNAL ENTRIES For Sale: Account receivable DR. 1570800 Sales Revenue Cr. 1570800 For cost of Goods sold Cost of Goods Sold expense Dr. 1324900 Purchases Cr. 1324900 For wrote off uncollectible accounts Allowance for Doubtful debtsDr. 29900 Accounts receivable Cr. 29900 Received payment from accounts receivable Cash Account Dr. 1,181,000 Accounts receivable Cr. 1,181,000 For Adjusting the accounts for uncollectible estimate Bad debts expense Dr. 36018.5 Allowance for doubtful debts Cr. 36018.5 Note: Allowance to be created for doubtful debt in 2017: Opening account receivable 650600 Add: Sales of 2017 1570800 Less: Cash received in 2017 1181000 Less: Bad debts 29900 Closing accounts receivable 1010500 Bad debts written off 29900 Estimated Allowance@1.7% 17178.5 Total 47078.5 Less: Provision already made in 2016 11060 Provision to be created 36018.5
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