Liang Company began operations in Year 1. 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: Year 1
1. Sold $1,348,100 of merchandise (that had cost $981,200) on credit, terms n/30.
2. Wrote off $20,700 of uncollectible accounts receivable.
3. Received $667,100 cash in payment of accounts receivable.
4. In adjusting the accounts on December 31, the company estimated that 1.60% of accounts receivable would be uncollectible.
Year 2
1. Sold $1,557,000 of merchandise (that had cost $1,347,300) on credit, terms n/30.
2. Wrote off $28,600 of uncollectible accounts receivable.
3. Received $1,241,900 cash in payment of accounts receivable.
4. In adjusting the accounts on December 31, the company estimated that 1.60% of accounts receivable would be uncollectible.
Required:
Prepare journal entries to record Liang’s Year 1 and Year 2 summarized transactions and its year-end adjustments to record bad debts expense.

Answer and Explanation:

The journal entries are shown below;

For the year 1

1. Accounts receivable $1,348,100

         To Sales$1,348,100

(Being the sale of merchandise is recorded)

Cost of good sold$981,200

         To Merchandise inventory$981,200

(Being the cost of merchandise is recorded)

2. Allowance for doubtful accounts$20,700  

                  To Accounts receivable$20,700

(Being the written off amount is recorded)

3. Cash$6,67,100  

      To Accounts receivable  $6,67,100

(Being the cash received is recorded)  

d.Bad debts expense   $31,264.80

              To Allowance for doubtful accounts   $31,264.80

(Being the bad debt expense is recorded)

The computation is shown below for bad debts

Sales                                                               $1,348,100

Less:  cash collection                                   -$667,100

Less: written off amount                                -$20,700

Ending balance of account receivable        $660,300

1.60% of account receivable                          $10,564.80

Add: debit balance                                          $20,700

bad debt expense                                           $31,264.80

For the year 2

1. Accounts receivable $1,557,000

         To Sales$1,557,000

(Being the sale of merchandise is recorded)

Cost of good sold$1,347,300

         To Merchandise inventory $1,347,300

(Being the cost of merchandise is recorded)

2. Allowance for doubtful accounts$28,600

                  To Accounts receivable$28,600

(Being the written off amount is recorded)

3. Cash  $1,241,900

      To Accounts receivable  $1,241,900

(Being the cash received is recorded)  

d.Bad debts expense   $33,184

              To Allowance for doubtful accounts   $33,184

(Being the bad debt expense is recorded)

The computation of the bad debt expense is shown below;

beginning balance of account receivable     $660,300

Add: Sales                                                        $1,557,000

Less:  cash collection                                      -$1,241,900

Less: written off amount                                  -$28,600

Ending balance of account receivable          $948,600

1.60% of account receivable                            $15,148.80

Add: debit balance ($28,600 -   $10,564.80)   $18,035.20

Year end adjustment                                          $33,184

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know