Solved:
Answered by AI, Verified by Human Experts
[The following information applies to the questions displayed below.]
[The following information applies to the questions displayed below.]At December 31, Hawke Company reports the following results for its calendar year.
Cash sales $ 220,000
Credit sales $ 550,000
In addition, its unadjusted trial balance includes the following items.
Accounts receivable Allowance for doubtful accounts
$ 495,000 debit $ 4,000 debit
Required:
Prepare the adjusting entry to record bad debts under each separate assumption.
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 4% of year-end accounts receivable are uncollectible.
Final answer:To record bad debts, we need to prepare an adjusting entry. Under each assumption, the adjusting entry would involve debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts.Explanation:Adjusting Entry to Record Bad Debts::In order to record bad debts, we need to prepare an adjusting entry. Let's look at each assumption:a. Bad Debts are estimated to be 4% of credit salesUnder this assumption, the adjusting entry would be:Bad Debt Expense = $550,000 x 4%= $22,000 (debit)Allowance for Doubtful Accounts = $22,000 (credit)b. Bad Debts are estimated to be 3% of total salesUnder this assumption, the adjusting entry would be:Bad Debt Expense = ($220,000 + $550,000) x 3%= $24,600 (debit)Allowance for Doubtful Accounts = $24,600 (credit)c. 4% of year-end accounts receivable are uncollectibleUnder this assumption, the adjusting entry would be:Bad Debt Expense = $495,000 x 4%= $19,800 (debit)Allowance for Doubtful Accounts = $19,800 (credit)...