Question

At December 31, Hawke Company reports the following results for its calendar year. Cash sales $ 2,113,090 Credit sales $ 3,720,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 1,127,160 debit Allowance for doubtful accounts $ 15,490 debit Required: 1. Prepare the adjusting entry to record bad debts under each separate assumption. Bad debts are estimated to be 3% of credit sales. Bad debts are estimated to be 2% of total sales. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible.

Answer 1

a.

DR Bad Debts Expense $111,600

CR Allowance for doubtful accounts $111,600

Working.

Bad debts are 3% of Credit sales which are $3,720,000

= 3% * 3,720,000

= $111,600

b.

DR Bad Debts Expense $116,661.80

CR Allowance for doubtful accounts $116,661.80

Working

Bad debts are 2% of Total sales which includes both cash and credit sales.

= 2% * (2,113,090 + 3,720,000)

= 2% * 5,833,090

= $116,661.80

c.

DR Bad Debts Expense $83,119.60

CR Allowance for doubtful accounts $83,119.60

Working

6% of accounts receivable are uncollectible with an unadjusted balance of $15,490;

= 15,490 + (6% * 1,127,160)

= 15,490 + 67,629.60

= $83,119.60