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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:

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2016

  • Sold $1,353,000 of merchandise (that had cost $978,400) on credit, terms n/30.
  • Wrote off $20,100 of uncollectible accounts receivable.
  • Received $667,800 cash in payment of accounts receivable.
  • In adjusting the accounts on December 31, the company estimated that 1.90% of accounts receivable will be uncollectible.

2017

  • Sold $1,536,200 of merchandise (that had cost $1,333,600) on credit, terms n/30.
  • Wrote off $32,700 of uncollectible accounts receivable.
  • Received $1,305,600 cash in payment of accounts receivable.
  • In adjusting the accounts on December 31, the company estimated that 1.90% 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.

Answer:

2016

  • Dr Accounts receivables 1,353,000
  • Cr Sales revenue 1,353,000

  • Dr Bad debt expense 20,100
  • Cr Accounts receivable 20,100

  • Dr Cash 667,800
  • Cr Accounts receivable 667,800

  • Dr Allowance for doubtful accounts 12,639
  • Cr Accounts receivable 12,639

2017

  • Dr Accounts receivable 1,536,200
  • Cr Sales revenue 1,536,200

  • Dr Bad debt expense 32,700
  • Cr Accounts receivable 32,700

  • Dr Cash 1,305,600
  • Cr Accounts receivable 1,305,600

  • Dr Allowance for doubtful accounts 3,760
  • Cr Accounts receivable 3,760

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