Question

At December 31, 2018, Hawke Company reports the following results for its calendar year.

Cash sales	$	1,905,000
Credit sales		5,682,000

In addition, its unadjusted trial balance includes the following items.

Accounts receivable	$	1,270,100	debit
Allowance for doubtful accounts		16,580	debit

Problem 7-2A Part 2

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2018, balance sheet assuming that bad debts are estimated to be 1.5% of credit sales.

Answer 1

Hawke Company
Balance sheet (Partial)
At December 31, 2018
Assets:
Accounts receivable (Gross)	$ 1,270,100
Less: Allowance for doubtful accounts	$ 68,650
Accounts receivable (Net)	$ 1,201,450

Working note:

Bad debt expense for the period = 1.5% x $5,682,000 credit sales = $85,230.

Recognition of bad debt will increase the allowance for doubtful accounts. Normal balance of an allowance for doubtful accounts is credit. Thus, $85,230 is credited in adjusting entry at the end of the year.

Allowance for doubtful accounts credited in adjusting entry	$ 85,230
Less: Allowance for doubtful accounts (Unadjusted bal.) (Debit)	$ 16,580
Allowance for doubtful accounts (Adjusted bal.) (Credit bal.)	$ 68,650