Question

Sherman Co. began operations on January 1, 2016, and completed several transactions during 2016 and 2017 that involved sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows.

2016

a. Sold \(685,350 of merchandise on credit (that had cost \)500,000), terms n∕30.

b. Received \(482,300 cash in payment of accounts receivable.

c. Wrote off \)9,350 of uncollectible accounts receivable.

d. In adjusting the accounts on December 31, the company estimated that 1% of accounts receivable will be uncollectible.

2017

e. Sold \(870,220 of merchandise on credit (that had cost \)650,000), terms n∕30.

f. Received \(990,800 cash in payment of accounts receivable.

g. Wrote off \)11,090 of uncollectible accounts receivable.

h. In adjusting the accounts on December 31, the company estimated that 1% of accounts receivable will be uncollectible.

Required

Prepare journal entries to record Sherman’s 2016 and 2017 summarized transactions and its year-end adjusting entry to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable. Round amounts to the nearest dollar.)

Short answer

The bad debt expenses for 2016 and 2017 are recorded at$11,287 and $9773, respectively.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Journal

A journal refers to recording business monetary transactions in chronological order in a books of accounts.

Step 2: Journal entries for the year 2016

Date	Particulars	Debit ($)	Credit ($)
a	Accounts receivables	685,350
	Sales		685,350
	(To record the sales)
a-2	Cost of goods sold	500,000
	Merchandise inventory		500,000
	(To record the sale of goods)
b	Cash	482,300
	Accounts receivables		482,300
	(To record the cash collection)
c	Allowance for doubtful accounts	9,350
	Accounts receivables		9,350
	(To record the allowance)
d	Bad debt expense	11,287
	Allowance for doubtful accounts		11,287
	(To record the bad debt expense)

Journal entry for the year 2017

Date	Particulars	Debit ($)	Credit ($)
e	Accounts receivables	870,220
	Sales		870,220
	(To record the sales)
e-2	Cost of goods sold	650,000
	Merchandise inventory		650,000
	(To record the sale of goods)
f	Cash	990,800
	Accounts receivables		990,800
	(To record the cash collection)
g	Allowance for doubtful accounts	11,090
	Accounts receivables		11,090
	(To record the allowance)
h	Bad debt expense	9,773
	Allowance for doubtful accounts		9,773
	(To record the bad debt expense)

Working note:
Calculation of bad debt expense for 2016

$\left[\left[\left(\$685,350-\$9,350-\$482,300\right)\times \frac{1}{100}\right]+\$9,350\right]\mathbf{.}$

Calculation of bad debt expense for 2017

$\left[\left[\left(\$193,700+\$870,220-\$11,090-\$990,800\right)\times \frac{1}{100}\right]+\left(\$11,090-\$1,937\right)\right]\mathbf{.}$