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.
Adjusting entries (all dated December 31, 2017).
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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