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Problem 7-2A (Algo) Estimating and reporting bad debts LO P2, P3 Skip to question [The following information applies to the questions displayed below.] At December 31, Hawke Company reports the following results for its calendar year. Cash sales $ 1,392,180 Credit sales $ 3,376,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 1,022,928 debit Allowance for doubtful accounts $ 22,240 debit Problem 7-2A (Algo) Part 1 Required: 1. Prepare the adjusting entry to record bad debts under each separate assumption. Bad debts are estimated to be 2% of credit sales. Bad debts are estimated to be 1% of total sales. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.

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Answer:

A. Dr Bad Debts Expense $67,520

Cr Allowance for doubtful accounts $67,520

B. Dr Bad Debts Expense $47,682

Cr Allowance for doubtful accounts $47,682

C. Dr Bad Debts Expense $73,386

Cr Allowance for doubtful accounts $73,386

Explanation:

A. Preparation of the adjusting entry to record bad debts if Bad debts are estimated to be 2% of credit sales

Dr Bad Debts Expense $67,520

Cr Allowance for doubtful accounts $67,520

(2% * $3,376,000)

(To record 2% of credit sales)

B. Preparation of the adjusting entry to record bad debts if Bad debts are estimated to be 1% of total sales

Dr Bad Debts Expense $47,682

Cr Allowance for doubtful accounts $47,682

[1% * ($ 1,392,180 + $3,376,000)]

(To record 1% of total sales )

C. Preparation of the adjusting entry to record bad debts if An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.

Dr Bad Debts Expense $73,386

Cr Allowance for doubtful accounts $73,386

[$ 22,240 + (5% * $ 1,022,928)]

(To record 5% year-end uncollectible accounts receivable)

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