Question

Required information

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

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

Cash sales	$	2,197,110
Credit sales	$	2,971,000

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

Accounts receivable	$	900,213	debit
Allowance for doubtful accounts	$	11,130	debit

Problem 7-2A Part 1

Required:
1. Prepare the adjusting entry to record bad debts under each separate assumption.

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). (Do not round intermediate calcu

Answer 1

Solution

	Date	General Journal	Debit	credit
Assumption 1	Dec-31	Bad debts expense	$    89,130.00
		Allowance for doubtful accounts		$    89,130.00
		(To record bad debts expense)
Assumption 2	Dec-31	Bad debts expense	$ 103,362.20
		Allowance for doubtful accounts		$ 103,362.20
		(To record bad debts expense)
Assumption 3	Dec-31	Bad debts expense	$    65,142.78
		Allowance for doubtful accounts		$    65,142.78
		(To record bad debts expense)

.Alternate solution with answers in zero decimal place

	Date	General Journal	Debit	credit
Assumption 1	Dec-31	Bad debts expense	$    89,130
		Allowance for doubtful accounts		$    89,130
		(To record bad debts expense)
Assumption 2	Dec-31	Bad debts expense	$ 103,362
		Allowance for doubtful accounts		$ 103,362
		(To record bad debts expense)
Assumption 3	Dec-31	Bad debts expense	$    65,143
		Allowance for doubtful accounts		$    65,143
		(To record bad debts expense)

Working

Assumption 1	Dec-31	Bad debts expense	2971000 x 3%
Assumption 2	Dec-31	Bad debts expense	(2197110+2971000) x 2%
Assumption 3	Dec-31	Bad debts expense	(900213 x 6%)+11130