Question

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

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).

#### Homework Answers

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
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