Question

At December 31, Hawke Company reports the following results for its calendar year. Cash sales $ 760,000 Credit sales $ 1,900,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 570,000 debit Allowance for doubtful accounts $ 6,800 debit Required: 1. Prepare the adjusting entry to record bad debts under each separate assumption. Bad debts are estimated to be 2% of credit sales. Bad debts are estimated to be 1% of total sales. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible. Adjusting entries (all dated December 31).

Answer 1

To prepare the adjusting entry to record bad debts under each separate assumption, calculate the estimated bad debts using the given information and make the necessary adjustments. For the assumption of bad debts being 2% of credit sales, it would be $38,000. For the assumption of bad debts being 1% of total sales, it would be $25,600. For the assumption based on the aging analysis, it would be $34,200.

Step-by-step explanation:

To prepare the adjusting entry to record bad debts under each separate assumption, we need to calculate the estimated bad debts using the given information.

1. For the assumption that bad debts are estimated to be 2% of credit sales, we can calculate it as follows: $1,900,000 x 2% = $38,000. The adjusting entry would be:
2. For the assumption that bad debts are estimated to be 1% of total sales, we can calculate it as follows: ($760,000 + $1,900,000) x 1% = $25,600. The adjusting entry would be:
3. For the assumption based on the aging analysis that 6% of year-end accounts receivable are uncollectible, we can calculate it as follows: $570,000 x 6% = $34,200. The adjusting entry would be: