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Problem 7-2A Estimating and reporting bad debts LO P2, P3

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

Cash sales	$	2,193,290
Credit sales		3,239,000

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

Accounts receivable	$	981,417	debit
Allowance for doubtful accounts		10,900	debit

Problem 7-2A Part 1

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

1. Bad debts are estimated to be 2% of credit sales.
2. Bad debts are estimated to be 1% of total sales.
3. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.

Adjusting entries (all dated December 31, 2017).

Answer 1

1]
a]	Additional provision for doubtful debts required = 3239000*2% =	$         64,780
	JOURNAL ENTRY:
	Bad debts expense	$         64,780
	Allowance for doubtful accounts		$         64,780
b]	Additional provision for doubtful debts required = 3239000*1% =	$         32,390
	JOURNAL ENTRY:
	Bad debts expense	$         32,390
	Allowance for doubtful accounts		$         32,390
c]	Balance required in allowance for doubtful accounts = 981417*5% =	$         49,071
	JOURNAL ENTRY:
	Bad debts expense [49071+10900]	$         59,971
	Allowance for doubtful accounts		$         59,971