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9 September, 20:45

At December 31, Hawke Company reports the following results for its calendar year. Cash sales $ 1,883,940 Credit sales $ 3,070,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 930,210 debit Allowance for doubtful accounts $ 22,420 debit

Required:

Prepare the adjusting entry to record bad debts under each separate assumption. Bad debts are estimated to be 4% of credit sales. Bad debts are estimated to be 3% of total sales. An aging analysis estimates that 7% of year-end accounts receivable are uncollectible.

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  1. 9 September, 21:02
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    Assumption 1: Bad debts are estimated to be 4% of credit sales.

    => Bad debt expense: 3,070,000 x 4% - 22,420 = $100,380

    Dr Bad Debt Expenses $100,380

    Cr Allowance for doubtful account $100,380

    Assumption 2: Bad debts are estimated to be 3% of total sales.

    => Bad debt expense: (Cash sales + Credit sales) x 3% = (1,883,940 + 3,070,000) x 3% - 22,420 = $126,198.2

    Dr Bad Debt Expenses $126,198.2

    Cr Allowance for doubtful account $126,198.2

    Assumption 3: An aging analysis estimates that 7% of year-end accounts receivable are uncollectible.

    => Bad debt expense: 930,210 x 7% - 22,420 = $42,694.7

    Dr Bad Debt Expenses $42,694.7

    Cr Allowance for doubtful account $42,694.7

    Explanation:

    Explanation has been given in each assumption.
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