Problem 9-2A

Estimating and reporting bad debts

P2 P3

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

Cash sales $ 1,905,000 Credit sales $5,682,000

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

Accounts receivables $1,270,100 debit Allowance for doubtful accounts $16,580 debit

Required

1. Prepare the adjusting entry to record bad debts under each separate assumption.

a. Bad debts are estimated to be 1.5% of credit sales.

Check Bad Debts Expense: (1a) $85,230, (1c) $80,085

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.

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31 balance sheet given the facts in part 1a.

3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31 balance sheet given the facts in part 1c."