Liang Company began operations on January 1, 2016. During its first two years, t

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 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 $6 receivable 69,200 cash in payment of accounts d. In adjusting the accounts on December 31, the company estimated that 1.5% of accounts receivable will be uncollectible 2017 a. Sold $1,525,634 of merchandise on credit (that had cost $1,250,000), terms n/30 b. Wrote off $27,800 of uncollectible accounts receivable c. Received $1,204,600 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 Required Prepare journal entries to record Liang's 2016 and 2017 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.)

Explanation / Answer

journal entry for 2016 and 2017 would be as follows -

Please comment in case of any clarification required/wrong answer.

Year Journal Dr. Cr. 2016 Accounts receivable 1345434 Cost of goods sold 975000 To sales 1345434 To inventory 975000 2016 Allowance for doubtful debts 18300 To Accounts receivable 18300 2016 Cash 669200 To accounts receivable 669200 2016 Bad debts expense 10143.51 To Allowance for Doubtful debts 10143.51 (1.5% of (1345434 - 669200) 2017 Accounts receivable 1525634 Cost of goods sold 1250000 To sales 1525634 To inventory 1250000 2017 Allowance for doubtful debts 10144 Bad debts Expenses 17656 To Accounts receivable 27800 2017 Cash 1204600 To Accounts receivable 1204600 2017 Bad debts expense 4815.51 To Allowance for Doubtful debts 4815.51 (1.5% of (1525634 - 1204600)

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