Question

Problem 7-2A Estimating and reporting bad debts LO P2, P3

[The following information applies to the questions displayed below.]

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

Cash sales	$	2,185,820
Credit sales		3,998,000

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

Accounts receivable	$	1,211,394	debit
Allowance for doubtful accounts		25,160	debit

. 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).
  

Problem 7-2A Estimating and reporting bad debts LO P2, P3

[The following information applies to the questions displayed below.]

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

Cash sales	$	2,185,820
Credit sales		3,998,000

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

Accounts receivable	$	1,211,394	debit
Allowance for doubtful accounts		25,160	debit

Problem 7-2A Part 2

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.
  

	Current assets:

Required information

Problem 7-2A Estimating and reporting bad debts LO P2, P3

[The following information applies to the questions displayed below.]

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

Cash sales	$	2,185,820
Credit sales		3,998,000

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

Accounts receivable	$	1,211,394	debit
Allowance for doubtful accounts		25,160	debit

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

Answer 1

SOLUTION

1. Journal entries-

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
A.	Bad debt expense	119,940
	Allowance for uncollectible		119,940
B.	Bad debt expense	123,676.40
	Allowance for uncollectible		123,676.40
C.	Bad debt expense	97,843.64
	Allowance for uncollectible		97,843.64

A. Bad debts = 3% of credit sales

= 3% * $3,998,000 = 119,940

B. Bad debts = 2% of total sales

= 2% * (2,185,820 + 3,998,000)

= 2% * $6,183,820 = 123,676.40

C. Allowance for uncollectible during the year = 6% of year end accounts receivable

= 6% * $1,211,394 = 72,683.64

Bad debt expense = Allowance for doubtful accounts(debit) + Allowance for uncollectible during the year

= 25,160 + 72,683.64 = 97,843.64

2.

	Amount ($)
Current assets:
Accounts receivable	1,211,394
Current liabilities:
Allowance for uncollectible (119,940-25,160)	94,780

3.

	Amount ($)
Current assets:
Accounts receivable	1,211,394
Current liabilities:
Allowance for uncollectible	97,843.64