Question

 At December 31, 2017, Hawke Company reports the following results for its calendar year.

 In addition, its unadjusted trial balance includes the following items.

 Required:

 1. Prepare the adjusting entry for this company to recognize bad debts under each of the following independent assumptions.

 a. Bad debts are estimated to be 4% of credit sales.

 b. Bad debts are estimated to be 3% of total sales.

 c. An aging analysis estimates that 7% of year-end accounts receivable are uncollectible.

 Adjusting entries (all dated December 31, 2017).

 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet given the facts in part 1a.

 3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet given the  facts in part 1c.

Answer 1

Solution 1:

Journal Entries- Hawke Company
Transaction	Account Title and Explanation	Debit	Credit
(a)	Bad Debt Expense Dr ($3,988,000*4%)	$1,59,520
	To Allowance for Doubtful Debts		$1,59,520
	(To record Bad debt expense 4% of credit sales)
(b)	Bad Debt Expense Dr [($3,988,000+ $1,496,210)*3%]	$1,64,526
	To Allowance for Doubtful Debts		$1,64,526
	(To record Bad debt expense 3% of Total sales)
(c )	Bad Debt Expense Dr [($1,208,364*7%) + $13530]	$98,115
	To Allowance for Doubtful Debts		$98,115
	(To record Bad debt expense 7% of Accounts Receivable)

Solution 2:

Balance Sheet (Partial)
December 31, 2017
Current Assets:
Accounts Receivable	$12,08,364
Less: Allowance for Doubtful Account ($159520 - $13530)	$1,45,990
Accounts Receivable, Net		$10,62,374

Solution 3:

Balance Sheet (Partial)
December 31, 2017
Current Assets:
Accounts Receivable	$12,08,364
Less: Allowance for Doubtful Account ($98115 - $13530)	$84,585
Accounts Receivable, Net		$11,23,779