| At December 31, 2015, Hawke Company reports the following results for its calendar year. |
| Cash sales | $ | 1,775,640 | |
| Credit sales | 3,617,000 | ||
| In addition, its unadjusted trial balance includes the following items. |
| Accounts receivable | $ | 1,095,951 | debit |
| Allowance for doubtful accounts | 26,380 | debit | |
| Required: | |
| 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 4% of credit sales. |
| b. | Bad debts are estimated to be 3% of total sales. |
| c. | An aging analysis estimates that 7% of year-end accounts receivable are uncollectible. |
| Adjusting entries (all dated December 31, 2015). (Round your final answers to the nearest whole dollar.) |
| Dec 31, 2015 | |
| a. | Expense is 4% of credit sales: |
| To record estimated bad debts [$3,617,000 × 0.04] = $144,680 | |
| b. | Expense is 3% of total sales: |
| To record estimated bad debts [($1,775,640 + $3,617,000) × 0.03] = $161,779 | |
| c. | Allowance is 7% of accounts receivable: |
| Unadjusted balance | $ | 26,380 | debit | ||
| Estimated balance ($1,095,951 × 7%) | 76,717 | credit | |||
| Required adjustment | $ | 103,097 | credit | ||
| |||||
| Dec 31 | |
| a. | Expense is 4% of credit sales: |
| To record estimated bad debts [$3,617,000 × 0.04] = $144,680 | |
| Adjustment to the allowance | $ | 144,680 | Credit |
| Unadjusted allowance balance | 26,380 | Debit | |
| Adjusted balance | $ | 118,300 | Credit |
| 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. (Round your intermediate and final answers to the nearest whole dollar.)
|
| Allowance for doubtful accounts = ($1,095,951 × 7%) = $76,717 |
