Question

At December 31, 2017, 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

Required

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

Bad debts are estimated to be 1.5% of credit sales.

Bad debts are estimated to be 1% of total sales.

An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.

Check Bad Debts Expense: (1a) $85,230, (1c) $80,085

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

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)

Date	Account	Debit	credit
a	Bad debt expense	85230
	Allowance for Doubt ful account		85230
	[Estimated uncollectible : 5682000*.015]
1b	Bad debt expense	75870
	Allowance for Doubt ful account		75870
	[estimated uncollectible (1905000+5682000)*.01]
1c	Bad debt expense	80085
	Allowance for Doubt ful account		80085
	[estimated uncollectible (1270100*.05)=63505+16580 Debit balance]

4)

	1a	1c
Gross receivable	1270100	1270100
less Allowance for Doubt ful account	(68650) [85230-16580]	(63505)
Net receivable	1201450	1206595