Question

At December 31, 2017, Hawke Company reports the following results for its calendar year. Cash sales Credit sales $2,109,120 3,221,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable Allowance for doubtful accounts $975,963 debit 20,610 debit Required: Respond to each of the following independent scenarios. a. Prepare the adjusting entry for this company to recognize bad debts assuming bad debts are estimated to be 3% of credit sales. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet. b. Prepare the adjusting entry for this company to recognize bad debts assuming bad debts are estimated based on an aging analysis estimates where 6% of year-end accounts receivable are uncollectible. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet.

Answer 1

a)
Date	Accounts Titles and Explanations	Debit	Credit
Dec. 31, 2017	Bad Debts Expense ($3,221,000*3/100)	$96,630
	Allowance for Doubtful Accounts		$96,630
	(To estimation of 3% of debt debts on credit sales)

Hawke Company
Balance Sheet (Partial)
December 31, 2017.
Current Assets:
Accounts Receivable Balance	$975,963
Allowance for doubtful accounts ($96,630 - $20,610)	($76,020)	$899,943

b)
Date	Accounts Titles and Explanations	Debit	Credit
Dec. 31, 2017	Bad Debts Expense ($975,963*6/100 = $58,558 + $20,610)	$79,168
	Allowance for Doubtful Accounts		$79,168
	(To estimation of 6% of debt debts on year end receivables)

Hawke Company
Balance Sheet (Partial)
December 31, 2017.
Current Assets:
Accounts Receivable Balance	$975,963
Allowance for doubtful accounts ($79,168 - $20,610)	($58,558)	$917,405