Question

2017 Sold $1,351,700 of merchandise (that had cost $981,800) on credit, terms n/30. Wrote off $21,500 of uncollectible accounts receivable. Received $670,400 cash in payment of accounts receivable. In adjusting the accounts on December 31, the company estimated that 3.00% of accounts receivable will be uncollectible. 2018 Sold $1,586,800 of merchandise on credit (that had cost $1,326,300), terms n/30. Wrote off $25,300 of uncollectible accounts receivable. Received $1,182,900 cash in payment of accounts receivable. In adjusting the accounts on December 31, the company estimated that 3.00% 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.)

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

1. Accounts receivable Dr, $1,351,700

To Sales revenue $1,351,700

(Being merchandise on credit is recorded)

Cost of goods sold Dr, $981,800

To Merchandise inventory $981,800

(Being cost of goods sold is recorded)

2. Allowance for Uncollectible accounts Dr, $21,500

To Accounts receivable $21,500

(Being Uncollectible accounts is receivable is recorded)

3. Cash account Dr, $670,400

To Accounts receivable $670,400

(Being cash is recorded)

4. Bad debts expenses Dr, $41,294

To Allowance for uncollectible accounts $41,294

(Being bad debt expenses is recorded)

Working Note

Accounts receivable ($1,351,700 - $21,500 - $670,400) $659,800

Required balance 3% $19,794

Add: Debit balance $21,500

Bad debt expenses $41,294

5. Accounts receivable Dr, $1,586,800

To Sales revenue $1,586,800

(Being merchandise on credit is recorded)

Cost of goods sold Dr, $1,326,300

To Merchandise inventory $1,326,300

(Being cost of goods sold is recorded)

6. Allowance for Uncollectible accounts Dr, $25,300

To Accounts receivable $25,300

(Being uncollectible accounts receivable is recorded)

7. Cash account Dr,$1,182,900

To Accounts receivable $1,182,900

(Being cash is recorded)

8. Bad debts expenses Dr, $36,658

To Allowance for uncollectible accounts $36,658

(Being bad debt expenses is recorded)

Working Note

Accounts receivable-Gross $659,800

Add: Sales $1,586,800

Less: Collections $1,182,900

Less: Amount write off $25,300

Balance $1,038,400

Required balance 3% $31,152

Allowance Balance $19,794

Less: Amount written off $25,300

Debit balance $5,506

Add: Required balance $31,152

Bad debts expenses $36,658