Question

Required information The following information applies to the questions displayed below.) At December 31, 2018, Hawke Company reports the following results for its calendar year. Cash sales Credit sales $2,030,630 3,080,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable Allowance for doubtful accounts $933,240 debit 24,950 debit 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 3% of credit sales. (Round your final answers to the nearest whole dollar.) b. Bad debts are estimated to be 2% of total sales. C. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible. (Round your final answers to the nearest whole dollar.)

Answer 1

Under bad debts as a % of sales method entry is made with the amount calculated by multiplying sales with the % ignoring any existing balance in allowance account.

While in bad debts as a % of account receivable , first existing amount is adjusted and then remaining amount is shown as expense.

A) bad debts = 3% of credit sales

= $3080000*3%

= $92400

Entry will be

Bad debts account. $92400

Allowance for doubtful account. $92400

B) bad debts = 2% of total sales

= $5110630*2%

= $102212.60

Entry will be

Bad debts. $102212.60

Allowance for doubtful account. $102212.60

C) bad debts = 6% of year end account receivable

= $933240 * 6%

= $55994.4

Existing balance = $24950 debit

Adjustment amount for entry = $55994.4 + $24950

= $80944.40

Entry will be

Bad debts. $80944.40

Allowance for the doubtful account $80944.40

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