Vihn Luggage Manufacturing began operations on January 1, 2015. During the next two years, the company completed a number of transactions involving credit sales, accounts receivable collections, and bad debts. Vihn uses a perpetual inventory system, and the gross margin is 30% of the sales. These transactions are summarized as follows:
2015
a. Sold merchandise on credit for $850,000, terms n/30.
b. Wrote off uncollectible accounts receivable in the amount of $15,000.
c. Received cash of $320,000 in payment of outstanding accounts receivable.
d. December 31, Vihn estimated that 2% of the outstanding accounts receivable would become uncollectible.
2016
e. Sold merchandise on credit for $920,000, terms n/30.
f. Wrote off uncollectible accounts receivable in the amount of $20,000.
g. Received cash of $480,000 in payment of outstanding accounts receivable.
h. Vihn uses the same method as in 2015 to estimate and record the uncollectible accounts receivable.
Requirements
1. Prepare the journal entries to record the transactions that occurred in 2015 and 2016, and the adjusting entries to record bad debt expense at the end of each year.
2. Is the estimated amount for the bad debt expense sufficient?