Question

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.

Answer 1

Answer:

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.