Question

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

Cash sales	$	1,297,780
Credit sales		3,948,000

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

Accounts receivable	$	1,196,244	debit
Allowance for doubtful accounts		19,660	debit

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

Bad debts are estimated to be 3% of credit sales.

Bad debts are estimated to be 2% of total sales.

An aging analysis estimates that 6% of year-end accounts receivable are uncollectible.

Adjusting entries (all dated December 31, 2017).

Journal entry worksheet

·         Bad debts are estimated to be 3% of credit sales.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit a.

Journal entry worksheet

·         Bad debts are estimated to be 2% of total sales.

	Transaction General Journal Debit Credit b.

Journal entry worksheet

·         An aging analysis estimates that 6% of year-end accounts receivable are uncollectible.

	Transaction General Journal Debit Credit c.

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.
  
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

1)	Adjusting entry
no	Transaction	General Journal				Debit	Credit
1	a.	Bad debts expense				118440
		Allowance for Doubtful accounts					118,440
		(3,948,000*3%)
	b.	Bad debts expense				104916
		Allowance for Doubtful accounts					104,916
		(1297,780+3,948,000)*2%
	c.	Bad debts expense				91435
		Allowance for Doubtful accounts					91,435
		(1,196,244*6%)+19660
2)		for part 1a
		Current assets
		Accounts receivable						1,196,244
		less:Allowance for doubtful accounts(118,440-19,660)						98780	1,097,464
		For part 1c
		Current assets
		Accounts receivable						1,196,244
		less:Allowance for doubtful accounts						71775	1,124,469
		(1196244*6%)