Question

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

Cash sales $ 160,000
Credit Sales $ 400,000
In addition, its unadjusted trial balance includes the following items.
Accounts receivable $ 120,000 debit
Allowance for doubtful accounts $ 1,400 debit


Bad debts are estimated to be 2% of credit sales. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear
on its December 31 balance sheet.

Current Assets:
Accounts receivable $120,000
Less: Allowance for doubtful accounts $???

Answer 1

To determine the balance in the Allowance for Doubtful Accounts on December 31, we first need to estimate the bad debts based on the credit sales.

Bad debts = 2% of credit sales = 2% * $400,000 = $8,000

The balance in the Allowance for Doubtful Accounts would then be equal to the estimated bad debts, which is $8,000.

Therefore, the Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet as follows:

Current Assets:

Accounts receivable $120,000

Less: Allowance for doubtful accounts $8,000

Net accounts receivable $112,000