# Bad debts are estimated to be 3 of credit sales

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

Cash sales \$1,905,000
Credit sales 5,682,000.
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

Second step is to calculate Bad debt expense for Dec 31

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

Bad debt expense for Dec 31       \$101,810

Third step is to prepare the Adjusting Entry

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)

(\$7,587,000× 1%)

Second step is to calculate Bad debt expense for Dec 31

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

Bad debt expense for Dec 31         \$92,450

Third step is to prepare the Adjusting Entry

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

(\$1,270,100×5%)

Second step is to calculate Bad debt expense for Dec 31

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

Bad debt expense for Dec 31         \$80,085

Third step is to prepare the Adjusting Entry

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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