Chapter 9, Problem 4APSA

To determine

Concept Introduction:

Allowance method:

Under the Allowance method the estimated bad debts expenses are recorded using the Allowance for doubtful account and the actual bad debts written off using this account. Allowance for doubtful accounts represents the amount of expected bad debts or uncollectable accounts. This account is made as a provision for future bad debts.

To Prepare:

The Journal entries for the given transactions

Answer to Problem 4APSA

The Journal entries for the given transactions are as follows:

Liang Company
Journal Entries
Date	Account titles	Debit	Credit
Year 1
a.	Accounts Receivable	$1,345,434
	Sales Revenue		$ 1,345,434
	Cost of Goods Sold	$975,000
	Merchandise Inventory		$ 975,000
b.	Allowance for doubtful accounts	$ 18,300
	Accounts Receivable		$18,300
c.	Cash	$669,200
	Accounts Receivable		$ 669,200
d.	Bad Debts Expense	$ 28,169
	Allowance for doubtful accounts		$28,169
Year 2
e	Accounts Receivable	$1,525,634
	Sales Revenue		$ 1,525,634
	Cost of Goods Sold	$1,250,000
	Merchandise Inventory		$ 1,250,000
f.	Allowance for doubtful 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 doubtful accounts		$32,199

Explanation of Solution

The Journal entries for the given transactions are explained as follows:

Liang Compnay
Journal Entries
Date	Account titles	Debit	Credit
Year 1
a.	Accounts Receivable	$1,345,434
	Sales Revenue		$ 1,345,434
	(Being merchandise sold on account)
	Cost of Goods Sold	$975,000
	Merchandise Inventory		$ 975,000
	(Being merchandise sold)
b.	Allowance for doubtful accounts	$ 18,300
	Accounts Receivable		$18,300
	(Being account written off)
c.	Cash	$669,200
	Accounts Receivable		$ 669,200
	(Being payment received)
d.	Bad Debts Expense	$ 28,169
	Allowance for doubtful accounts		$28,169
	(Being adjustment made for Bad debts Expense)
	Note: Calculation of Bad debts Expense:
	Ending Accounts Receivable (A) (1345434-18300-669200)	$657,934
	Estimated bad debts (B) = (A*1.5% )	$ 9,869
	Balance in Allowance for doubtful accounts (C)	$ 18,300	Debit
	Bad debts Expense (B+C)	$ 28,169
Year 2
e	Accounts Receivable	$1,525,634
	Sales Revenue		$ 1,525,634
	(Being merchandise sold on account)
	Cost of Goods Sold	$1,250,000
	Merchandise Inventory		$ 1,250,000
	(Being merchandise sold)
f.	Allowance for doubtful accounts	$ 27,800
	Accounts Receivable		$27,800
	(Being account written off)
g.	Cash	$1,204,600
	Accounts Receivable		$ 1,204,600
	(Being payment received)
h.	Bad Debts Expense	$ 32,199
	Allowance for doubtful accounts		$32,199
	(Being adjustment made for Bad debts Expense)
	Note: Calculation of Bad debts Expense:
	Ending Accounts Receivable (A) (657934+1525634-27800-1204600)	$951,168
	Estimated bad debts (B) = (A*1.5% )	$ 14,268
	Balance in Allowance for doubtful accounts (C) (27800-9869)	$ 17,931	Credit
	Bad debts Expense (B+C)	$ 32,199