Question

Liang Company began operations on January 1, 2012. 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:
2012
a. Sold $1,345,434 of merchandise (that had cost $975,000) on credit, terms n/30.
b. Wrote off $18,300 of uncollectible accounts receivable.
c. Received $669,200 cash in payment of accounts receivable.
d.
In adjusting the accounts on December 31, the company estimated that 1.5% of accounts receivable will be uncollectible.
2013
e. Sold $1,525,634 of merchandise (that had cost $1,250,000) on credit, terms n/30.
f. Wrote off $27,800 of uncollectible accounts receivable.
g. Received $1,204,600 cash in payment of accounts receivable.
h.
In adjusting the accounts on December 31, the company estimated that 1.5% of accounts receivable will be uncollectible.
Required:
Prepare journal entries to record Liang’s 2012 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 1

Answer:

Liang Company

Journal Entries:

2012

a. Debit Accounts receivable $1,345,434

Credit Sales revenue $1,345,434

To record the sale of goods on credit, terms n/30.

Debit Cost of goods sold $975,000

Credit Inventory $975,000

To record the cost of goods sold.

b. Debit Allowance for Uncollectible accounts $18,300

Credit Accounts receivable $18,300

To write-off uncollectible accounts.

c. Debit Cash $669,200

Credit Accounts receivable $669,200

To record cash received on account.

d.  Debit Bad Debts Expense $28,169

Credit Allowance for Uncollectible accounts $28,169

To record bad debts expense and maintain a balance of $9,869 being 1.5% of accounts receivable as uncollectible.

2013

e. Debit Accounts receivable $1,525,634

Credit Sales revenue $1,525,634

To record the sale of goods on credit, terms n/30.

Debit Cost of goods sold $1,250,000

Credit Inventory $1,250,000

To record the cost of goods sold.

f. Debit Allowance for Uncollectible accounts $27,800

Credit Accounts receivable $27,800

To write-off uncollectible accounts.

g. Debit Cash $1,204,600

Credit Accounts receivable $1,204,600

To record the receipt of cash on account.

h.  Debit Bad Debts Expense $32,199

Credit Allowance for Uncollectible accounts $32,199

To record bad debts expense and maintain a balance of $14,268 being 1.5% of accounts receivable as uncollectible.

Explanation:

a) Data and Analysis:

2012

a. Accounts receivable $1,345,434 Sales revenue $1,345,434

Cost of goods sold $975,000 Inventory $975,000, terms n/30.

b. Allowance for Uncollectible accounts $18,300 Accounts receivable $18,300

c. Cash $669,200 Accounts receivable $669,200

d.  Bad Debts Expense $28,169 Allowance for Uncollectible accounts $28,169 balance of $9,869 being 1.5% of accounts receivable will be uncollectible.

2013

e. Accounts receivable $1,525,634 Sales revenue $1,525,634

Cost of goods sold $1,250,000 Inventory $1,250,000 credit, terms n/30.

f. Allowance for Uncollectible accounts $27,800 Accounts receivable $27,800

g. Cash $1,204,600 Accounts receivable $1,204,600

h.  Bad Debts Expense $32,199 Allowance for Uncollectible accounts $32,199 balance of $14,268 being 1.5% of accounts receivable will be uncollectible

T-accounts:

Accounts Receivable

Account Titles                       Debit         Credit

2012

Sales revenue              $1,345,434

Allowance for Uncollectible accounts $18,300

Cash                                                     669,200

Balance                                                657,934

2013

Balance                          $657,934

Sales revenue               1,525,634

Allowance for Uncollectible accounts $27,800

Cash                                                   1,204,600

Balance                                                  951,168

Allowance for Uncollectible accounts

Account Titles                       Debit         Credit

2012

Accounts receivable         $18,300

Bad Debts Expense                               $28,169

Balance                                 9,869

2013

Balance                                                   $9,869

Accounts receivable        $27,800

Bad Debts Expense                                32,199

Balance                             $14,268