Question

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

Cash sales	$	1,350,030
Credit sales		3,509,000

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

Accounts receivable	$	1,063,227	debit
Allowance for doubtful accounts		23,020	debit

Problem 7-2A Part 1

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 2% of credit sales.
2. Bad debts are estimated to be 1% of total sales.
3. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.

Adjusting entries (all dated December 31, 2017).

Answer 1

Ans.	No.	General Journal	Debit	Credit
	1	Bad debts expense	$70,180
		Allowance for doubtful accounts		$70,180
		(being adjusting entry made based on credit sales)
	2	Bad debts expense	$48,590
		Allowance for doubtful accounts		$48,590
		(being adjusting entry made based on total sales)
	3	Bad debts expense	$76,181
		Allowance for doubtful accounts		$76,181
		(being adjusting entry made based on accounts receivables)
	*Calculations:
Transaction 1	Bad debts expenses =   Credit sales * 2%
		$3,509,000 * 2%
		$70,180
Transaction 2	Bad debts expenses =   Total sales * 1%
		($1,350,030 + $3,509,000) * 1%
		$4,859,030 * 1%
		$48,590 (rounded)
Transaction 3	Debit balance of Allowance for doubtful accounts		$23,020
	Add: Estimated balance ($1,063,227 * 5%)		$53,161
	Adjusted amount for allowance for doubtful account (rounded)		$76,181