Question

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

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

Problem 7-2A Part 1 

Required:

 1. Prepare the adjusting entry to record bad debts under each separate assumption.

 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). (Do not round intermediate calculations.)

Problem 7-2A Part 2

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

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

Answer 1

Transaction	General Journal	Debit ($)	Credit ($)
a	Bad debts expense ( $ 3,644,000 x 4% )	$ 145,760
	Allowance for doubtful accounts		$ 145,760
	(To record the Estimated Bad debts expense )
b	Bad debts expense [($ 1,658,740 + $ 3,644,000 ) x 3% ]	$ 159,082
	Allowance for doubtful accounts		$ 159,082
	(To record the Estimated Bad debts expense )
c	Bad debts expense [ ( $ 1,104,132 x 7% ) + $ 11,490 ]	$ 88,779
	Allowance for doubtful accounts		$ 88,779
	(To record the Estimated Bad debts expense )
	Balance Sheet (Partial) December 31
	Current Assets:
	Accounts Receivable	$ 1,104,132
	Less: Allowance for Doubtful Account                  ( $ 145,760 (-) $ 11,490 )	($ 134,270 )
	Accounts Receivable, Net		$ 969,862
	Balance Sheet (Partial) December 31
	Current Assets:
	Accounts Receivable	$ 1,104,132
	Less: Allowance for Doubtful Account                  ( $ 88,779 (-) $ 11,490 )	($ 77,289)
	Accounts Receivable, Net		$ 1,026,843