At December 31,2017, Hawke Company reports the following results for its calendar year. rting $1,905,000 Cash sales 5.682,000 Credit sales. In addition, its unadjusted trial balance includes the following items. $1,270,100 debit 16,580 debit Required 1. Prepare the adjusting entry for this company to recognize bad debts under each of the followino i pendent assumptions. a. Bad debts are estimated to be 1.5% of credit sales. b. Bad debts are estimated to be 1% of total sales. c. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible. nse 5 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 3t 2017, balance sheet given the facts in part la 3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 3 1 2017, balance sheet given the facts in part Ic.
Answer
1.
a. Bad debts = 1.5% of credit sales
= 5,682,000 * 1.5%
= 85,230
Journal entry
| Bad debt expense | 85,230 | |
| Allowance for uncollectible | 85,230 |
b. Bad debts = 1% of total sales
= (1,905,000 + 5,682,000) * 1%
= 75,870.
Journal entry
| Bad debt expense | 75,870 | |
| Allowance for uncollectible | 75,870 |
c. Allowance for uncollectible during the year
= 5% of year end accounts receivable
= 1,270,100 * 5%
= 63,505
Bad debt expense = Allowance for doubtful accounts(debit) +
Allowance for uncollectible during the year
= 16,580 + 63,505
= 80,085
Journal entry
| Bad debt expense | 80,085 | |
| Allowance for uncollectible | 80,085 |
2.
Current assets
| Accounts receivable | 1,270,100 |
Current liabilities
| Allowance for uncollectible (85,230 - 16,580) | 68,650 |
3.
Current assets
| Accounts receivable | 1,270,100 |
Current liabilities
| Allowance for uncollectible | 63,505 |