[The following information applies to the questions displayed below.] At Decembe

Question

[The following information applies to the questions displayed below.] At December 31, 2015, Hawke Company reports the following results for its calendar year. Cash sales $ 1,334,940 Credit sales 3,903,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 1,182,609 debit Allowance for doubtful accounts 29,480 debit 1. Required information 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 2% 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. Adjusting entries (all dated December 31, 2015). 2. Required information 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. Required information 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.

Explanation / Answer

Answer 1. Journal Entry Date Particulars Dr. Amt Cr. Amt a. Bad Debts                                                         Dr.    48,580.00 To Allowance for Doubtful Accounts    48,580.00 (Record the Adjusting Entry passed fro Provision For Doubful Debts) Extra Provision Created = (3,903,000 X 2%) - $29480 = $48580 b. Bad Debts                                                         Dr.    22,899.40 To Allowance for Doubtful Accounts    22,899.40 (Record the Adjusting Entry passed fro Provision For Doubful Debts) Extra Provision Created = (3,903,000 + 1,334,940) X 1% - $29480 = $22899.40 c. Bad Debts                                                         Dr.    29,650.45 To Allowance for Doubtful Accounts    29,650.45 (Record the Adjusting Entry passed fro Provision For Doubful Debts) Extra Provision Created = $1,182,609 X 5% - $29480 = $29650.45 Answer 2. Partial Balance Sheet Part 1.a 1.b 1.c Accounts receivables       1,182,609.00    1,182,609.00    1,182,609.00 Less: Allowance for Doubtful Debts             78,060.00          52,379.40          59,130.45 Net Accounts Receivables       1,104,549.00    1,130,229.60    1,123,478.55

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