Questions: Problem 7-4A (Algo) Accounts receivable transactions and bad debts adjustments LO C1, P2, P3 Year 2 e. Sold 1,574,500 of merchandise (that had cost 1,322,700) on credit, terms n / 30. f. Wrote off 32,300 of uncollectible accounts receivable. g. Received 1,243,300 cash in payment of accounts receivable. h. In adjusting the accounts on December 31, the company estimated that 2.70% 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. (The company uses the perpetual inventory system, and it applies the allowance method for its accounts receivable.) Note: Round your intermediate calculations to the nearest dollar. Complete this question by entering your answers in the tabs below. Year 1 Prepare journal entries to record Liang's Year 1 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.) Sold 1,350,700 of merchandise on credit, terms n / 30.

To address the question, we need to prepare journal entries for Liang Company's Year 1 and Year 2 transactions, including year-end adjustments for bad debts. The company uses the perpetual inventory system and the allowance method for accounts receivable. Let's break down the transactions and prepare the necessary journal entries.

1. Sale of Merchandise on Credit:

   • Sold $1,350,700 of merchandise on credit (cost $976,700), terms n/30.

   Journal Entry:

   • Debit Accounts Receivable: $1,350,700
   • Credit Sales Revenue: $1,350,700
   • Debit Cost of Goods Sold: $976,700
   • Credit Inventory: $976,700

2. Write-off of Uncollectible Accounts:

   • Wrote off $20,200 of uncollectible accounts receivable.

   Journal Entry:

   • Debit Allowance for Doubtful Accounts: $20,200
   • Credit Accounts Receivable: $20,200

3. Cash Collection from Accounts Receivable:

   • Received $670,300 cash in payment of accounts receivable.

   Journal Entry:

   • Debit Cash: $670,300
   • Credit Accounts Receivable: $670,300

4. Year-end Adjustment for Bad Debts:

   • Estimated that 2.70% of accounts receivable would be uncollectible.

   Calculation:

   • Ending Accounts Receivable = $1,350,700 (sales) - $670,300 (collections) - $20,200 (write-offs) = $660,200
   • Estimated Bad Debts = 2.70% of $660,200 = $17,825 (rounded to nearest dollar)

   Journal Entry:

   • Debit Bad Debts Expense: $17,825
   • Credit Allowance for Doubtful Accounts: $17,825

1. Sale of Merchandise on Credit:

   • Sold $1,574,500 of merchandise on credit (cost $1,322,700), terms n/30.

   Journal Entry:

   • Debit Accounts Receivable: $1,574,500
   • Credit Sales Revenue: $1,574,500
   • Debit Cost of Goods Sold: $1,322,700
   • Credit Inventory: $1,322,700

2. Write-off of Uncollectible Accounts:

   • Wrote off $32,300 of uncollectible accounts receivable.

   Journal Entry:

   • Debit Allowance for Doubtful Accounts: $32,300
   • Credit Accounts Receivable: $32,300

3. Cash Collection from Accounts Receivable:

   • Received $1,243,300 cash in payment of accounts receivable.

   Journal Entry:

   • Debit Cash: $1,243,300
   • Credit Accounts Receivable: $1,243,300

4. Year-end Adjustment for Bad Debts:

   • Estimated that 2.70% of accounts receivable would be uncollectible.

   Calculation:

   • Ending Accounts Receivable = ($1,574,500 + $660,200) - ($1,243,300 + $32,300) = $959,100
   • Estimated Bad Debts = 2.70% of $959,100 = $25,895 (rounded to nearest dollar)

   Journal Entry:

   • Debit Bad Debts Expense: $25,895
   • Credit Allowance for Doubtful Accounts: $25,895

These journal entries reflect the transactions and adjustments for bad debts for Liang Company over the first two years of operations.