At December 31, 2017, Hawke Company reports the following results for its calendar year. Cash sales $1,905,000
Credit sales 5,682,000.
In addition, its unadjusted trial balance includes the following items.
Accounts receivable $1,270,100 debit
Allowance for doubtful accounts 16,580 debit
Reqiured:
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 1.5% of credit sales.
B. Bad debts are estimated to be 1% of total sales.
C. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet given the facts in part 1a.
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet given the facts in part 1c.

The  adjusting entries to recognize bad debts including  how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015 balance sheet are:

1a. Journal entry to estimate Bad debts at 1.5% of credit sales.

First step is to calculate the Bad debt accrual  

Bad debt accrual=Total credit sales × Bad debt accrual  percentage

Bad debt accrual=$ 5,682,000×1.5%  

Bad debt accrual=$85,230

Second step is to calculate Bad debt expense for Dec 31

 Bad debt accrual        $85,230

Less Allowance for doubtful account balance ($16,580)

Bad debt expense for Dec 31       $101,810

Third step is to prepare the Adjusting Entry    

Debit Bad debt expense       $101,810

Credit Allowance for doubtful account  $101,810

(To record Bad debts at 1.5% of credit sales)

1b.Journal entry to estimate Bad debts at 1% of credit sales.

First step is to calculate the Bad debt accrual    

Total credit sales    $5,682,000

Total cash sales    $1,905,000  

Total sales$7,587,000

($5,682,000+$1,905,000)

Bad debt accrual %1%  

Bad debt accrual        $75,870

($7,587,000×1%)

Second step is to calculate Bad debt expense for Dec 31

Bad debt accrual         $75,870

Less Allowance for doubtful account balance ($16,580)  

Bad debt expense for Dec 31         $92,450

Third step is to prepare the Adjusting Entry  

Debit Bad debt expense        $92,450

Credit Allowance for doubtful account  $92,450

(To record Bad debts at 1% of credit sales)

1c. Journal entry to estimate 5% of year-end accounts receivable are uncollectible

First step is to calculate the Bad debt accrual  

Accounts Receivable    $1,270,100

Bad debt accrual %5.0%  

Bad debt accrual         $63,505

($1,270,100×5%)

Second step is to calculate Bad debt expense for Dec 31

Bad debt accrual         $63,505

Less Allowance for doubtful account balance      ($16,580)

Bad debt expense for Dec 31         $80,085

Third step is to prepare the Adjusting Entry  

Debit Bad debt expense         $80,085  

Credit Allowance for doubtful account       $80,085  

(To record accounts receivable uncollectible)

2. How Accounts Receivable and the Allowance for Doubtful Accounts should appear on its December 31, 2015, balance sheet:   

Balance Sheet as on December 31, 2015

Accounts Receivable (gross)    $1,270,100

Less: Allowance for doubtful accounts       $101,810

Accounts Receivable (net)$1,168,290

3.  How Accounts Receivable and the Allowance for Doubtful Accounts should appear on its December 31, 2015, balance sheet:   

Balance Sheet as on  December 31, 2015

Accounts Receivable (gross)    $1,270,100

Less: Allowance for doubtful accounts        $80,085

Accounts Receivable (net) $1,190,015

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Hawke Company

1. Adjusting Entries to recognize bad debts under the following independent assumptions:

A. Bad debts are estimated to be 1.5% of credit sales:

Debit Bad Debts Expense $73,400

Credit Allowance for Doubtful Accounts $73,400

To record bad debts expenses and bring the allowance for doubtful accounts balance to $56,820.

B. Bad debts are estimated to be 1% of total sales:

Debit Bad Debts Expense $92,450

Credit Allowance for Doubtful Accounts $92,450

To record bad debts expenses and bring the allowance for doubtful accounts balance to $75,870.

C. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible:

Debit Bad Debts Expense $80,085

Credit Allowance for Doubtful Accounts $80,085

To record bad debts expenses and bring the allowance for doubtful accounts balance to $63,505.

2. Balance Sheet as of December 31, 2015:

A. Accounts Receivable                      $1,270,100

less allowance for doubtful accounts     56,820

Net balance                                        $1,213,280

3. Balance Sheet as of December 31, 2015:

C. Accounts Receivable                      $1,270,100

less allowance for doubtful accounts     63,505

Net balance                                       $1,206,595

Explanation:

a) Data:

Cash sales $1,905,000

Credit sales 5,682,000

Accounts Receivable $1,270,100

Allowance for doubtful accounts $16,580 debit

1. Bad debts = 1.5% of $5,682,000 = $56,820

2. Bad debts are estimated to be 1% of total sales:

Bad debts = 1% of $7,587,000 = $75,870

3. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible:

Bad debts = 5% of $1,270,100 = $63,505

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