Question

At December 31, 2017, Hawke Company reports the following results for its calendar year.

Cash sales	$	1,558,750
Credit sales		2,963,000

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

Accounts receivable	$	897,789	debit
Allowance for doubtful accounts		29,350	debit

At December 31, 2017, Hawke Company reports the following results for its calendar year.

Cash sales	$	1,558,750
Credit sales		2,963,000

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

Accounts receivable	$	897,789	debit
Allowance for doubtful accounts		29,350	debit

Required:
1. Prepare the adjusting entry for this company to recognize bad debts under each of the following independent assumptions.

1. Bad debts are estimated to be 3% of credit sales.
2. Bad debts are estimated to be 2% of total sales.
3. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible.

Adjusting entries (all dated December 31, 2017).

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet given the facts in part 1a.
  

Answer 1

Solution 1:

Journal Entries- Hawke Company
Transaction	Account Title and Explanation	Debit	Credit
(a)	Bad Debt Expense Dr ($2,963,000*3%)	$88,890
	To Allowance for Doubtful Debts		$88,890
	(To record Bad debt expense 3% of credit sales)
(b)	Bad Debt Expense Dr [($2,963,000+ $1,558,750)*2%]	$90,435
	To Allowance for Doubtful Debts		$90,435
	(To record Bad debt expense 2% of Total sales)
(c )	Bad Debt Expense Dr [($897,789*6%) + $29350]	$83,217
	To Allowance for Doubtful Debts		$83,217
	(To record Bad debt expense 6% of Accounts Receivable)

Solution 2:

Balance Sheet (Partial)
December 31, 2017
Current Assets:
Accounts Receivable	$8,97,789
Less: Allowance for Doubtful Account ($88890 - $29350)	$59,540
Accounts Receivable, Net		$8,38,249