At December 31, 2013, Hawke Company reports the following results for its calend

Question

At December 31, 2013, Hawke Company reports the following results for its calendar-year.

Cash sales $ 1,797,950
Credit sales 3,534,000

In addition, its unadjusted trial balance includes the following items.

Accounts receivable $ 1,070,802 debit
Allowance for doubtful accounts 20,060 debit

Prepare the adjusting entry for this company to recognize bad debts under each of the following independent assumptions.

Prepare the adjusting entry for this company to recognize bad debts under each of the following independent assumptions.

Explanation / Answer

Answer:

Adjustment entry to recognize bad debts under each of following independent assumptions:

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

Bad Debts Estimated Amount = 3% of Credit Sales = 3% x $3,534,000 = $106,020

Since, unadjusted trial balance already have Debit balance $20,060 in Allowance for doubtful accounts, the following adjustment entry is passed for balance amount $126,080 ($106,020 + $20,060)

Bad Debts Expenses ….Dr.        $126,080

       To Allowance for doubtful Account             $20,060

       To Accounts Receivable                                  $106,020

(Being Bad Debts adjustment entry passed)

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

Bad Debts Amount = Total Sales x 2% = ($1,797,950 + $3,534,000) x 2% = $1,06,639

Since, unadjusted trial balance already have Debit balance $20,060 in Allowance for doubtful accounts, the following adjustment entry is passed with the value $126,699 ($106,639 + $20,060)

Bad Debts Expenses ….Dr. $126,699

To Allowance for doubtful Account $20,060

       To Accounts Receivable ($3534000 x 2%)       $70,680

       To Discount on Sales ($1797950 x 2%) Dr.       $35,959

     (Being Bad Debts adjustment entry passed to record Bad Debts amount)

c. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible.

Accounts Receivable Balance at year end = $1,070,802

Bad Debts Amount for the year ending = $1,070,802 x 6% = $64,248

Adjustment Entry

Bad Debts Expenses ….Dr. $64,248

To Allowance for doubtful Account $20,060

       To Accounts Receivable ($64,248 - $20,060)       $44,188

(Being adjustment entry passed)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.