At December 31, Hawke Company reports the following results for its calendar year. Cash sales $ 1,269,730 Credit sales $ 3,913,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 1,185,639 debit Allowance for doubtful accounts $ 17,990 debit Required: 1. Prepare the adjusting entry to record bad debts under each separate assumption. Bad debts are estimated to be 3% of credit sales. Bad debts are estimated to be 2% of total sales. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible

Hawke Company

1. Adjusting Journal Entries to record bad debts under:

a) Bad debts are estimated to be 3% of credit sales:

Debit Bad Debts Expense $135,380

Credit Allowance for Doubtful Accounts $135,380

To record the bad debt expense for the period.

b) Bad debts are estimated to be 2% of total sales:

Debit Bad Debts Expense $121,645

Credit Allowance for Doubtful Accounts $121,645

To record the bad debt expense for the period.

c) An ageing analysis estimates that 6% of year-end accounts receivable are uncollectible:

Debit Bad Debts Expense $89,128

Credit Allowance for Doubtful Accounts $89,128

To record bad debt expense for the period.

Explanation:

a) Allowance for doubtful accounts should have a credit balance of $117,390 ($3,913,000 * 3%).  Since there was a debit balance in the unadjusted trial balance of $17,990, the two are added to arrive at what should be expensed.

b) Allowance for doubtful accounts will have a credit balance of $103,655 ($5,182,730 * 2%).  With a debit balance in the unadjusted trial balance of $17,990, the sum of $121,645 (amount expensed) will bring the balance to a credit balance of $103,655.

c) Allowance for doubtful accounts will have a credit balance of $71,138 ($ 1,185,639 * 6%).  With a debit balance in the unadjusted trial balance of $17,990, the sum of $89,128 will be expensed to bring the balance to a credit balance of $71,138.