On December 31, 2017, Hawke Company reported the following results for its calendar year: Cash sales of 5,682,000 and credit sales of 0. In addition, its unadjusted trial balance includes the following items: $1,270,100 debit; 16,580 debit. Required under each of the following independent assumptions:

A) Prepare the adjusting entry for this company to recognize the bad debts:

Bad debts are estimated to be 1.5% 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.
B) Show how the Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet, given the facts in Part A.

C) Check the Bad Debts Expense ($85,230). Show how the Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet, given the facts in Part A.

The calculations are shown below

Explanation:

a. Bad debt expense A/c Dr  $85,230

               To Allowance for doubtful debts $85,230

(Being bad debt expense is recorded)    

It is computed below:

= $5,682,000 × 1.5%

= $85,230

Bad debt expense A/c Dr $75,870

               To Allowance for doubtful debts $75,870

(Being bad debt expense is recorded)    

It is computed below:

= ($5,682,000 + $1,905,000) × 1%

= $75,870

Bad debt expense A/c Dr $75,870

               To Allowance for doubtful debts $75,870

(Being bad debt expense is recorded)    

It is computed below:

= ($1,270,100 × 5%) + $16,580

= $80,085

b. Now the appearance is presented below:

Account receivable       $1,270,100

Less: Allowance for doubtful debts -$68,650        ($85,230 - $16,580)

Net account receivable              $1,201,450

c. Now the appearance is presented below:

Account receivable       $1,270,100

Less: Allowance for doubtful debts -$63,505       ($80,805 - $16,580)

Net account receivable              $1,206,595

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