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2 November, 01:13

At December 31, Hawke Company reports the following results for its calendar year. Cash sales $ 1,269,730 Credit sales $ 3,913,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 1,185,639 debit Allowance for doubtful accounts $ 17,990 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

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  1. 2 November, 03:49
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    Hawke Company

    1. Adjusting Journal Entries to record bad debts under:

    a) Bad debts are estimated to be 3% of credit sales:

    Debit Bad Debts Expense $135,380

    Credit Allowance for Doubtful Accounts $135,380

    To record the bad debt expense for the period.

    b) Bad debts are estimated to be 2% of total sales:

    Debit Bad Debts Expense $121,645

    Credit Allowance for Doubtful Accounts $121,645

    To record the bad debt expense for the period.

    c) An ageing analysis estimates that 6% of year-end accounts receivable are uncollectible:

    Debit Bad Debts Expense $89,128

    Credit Allowance for Doubtful Accounts $89,128

    To record bad debt expense for the period.

    Explanation:

    a) Allowance for doubtful accounts should have a credit balance of $117,390 ($3,913,000 * 3%). Since there was a debit balance in the unadjusted trial balance of $17,990, the two are added to arrive at what should be expensed.

    b) Allowance for doubtful accounts will have a credit balance of $103,655 ($5,182,730 * 2%). With a debit balance in the unadjusted trial balance of $17,990, the sum of $121,645 (amount expensed) will bring the balance to a credit balance of $103,655.

    c) Allowance for doubtful accounts will have a credit balance of $71,138 ($ 1,185,639 * 6%). With a debit balance in the unadjusted trial balance of $17,990, the sum of $89,128 will be expensed to bring the balance to a credit balance of $71,138.
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