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Aging of Receivables; Estimating The contra asset account for accounts receivable.Allowance for Doubtful Accounts Wig Creations...

  1. Aging of Receivables; Estimating The contra asset account for accounts receivable.Allowance for Doubtful Accounts

    Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Wig Creations prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y7:

    Not Days Past Due
    Past
    Customer Balance Due 1-30 31-60 61-90 91-120 Over 120
    ABC Beauty 20,200 20,200
    Angel Wigs 7,800 7,800
    Zodiac Beauty 3,600 3,600
    Subtotals 1,296,400 748,100 293,500 113,000 38,000 19,400 84,400

    The following accounts were unintentionally omitted from the aging schedule. Assume all due dates are for the current year except for Visions Hair & Nail, which is due in the next year.

    Customer Due Date Balance
    Arcade Beauty Aug. 17 $5,500
    Creative Images Oct. 30 5,200
    Excel Hair Products July 3 8,400
    First Class Hair Care Sept. 8 7,000
    Golden Images Nov. 23 3,400
    Oh That Hair Nov. 29 2,200
    One Stop Hair Designs Dec. 7 6,800
    Visions Hair & Nail Jan. 11 4,200

    Wig Creations has a past history of uncollectible accounts by age category, as follows:

    Age Class Percent Uncollectible
    Not past due 1 %
    1-30 days past due 2
    31-60 days past due 10
    61-90 days past due 31
    91-120 days past due 42
    Over 120 days past due 83

    Required:

    1. Determine the number of days past due for each of the preceding accounts. If an account is not past due, enter a zero.

    Customer Due Date Number of Days Past Due
    Arcade Beauty Aug. 17 days
    Creative Images Oct. 30 days
    Excel Hair Products July 3 days
    First Class Hair Care Sept. 8 days
    Golden Images Nov. 23 days
    Oh That Hair Nov. 29 days
    One Stop Hair Designs Dec. 7 days
    Visions Hair & Nail Jan. 11 days

    2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals. If an amount box does not require an entry, leave it blank.

    Wig Creations Company
    Aging of Receivables Schedule
    December 31, 20Y7


    Customer


    Balance
    Not Past
    Due
    Days Past
    Due 1-30
    Days Past
    Due 31-60
    Days Past
    Due 61-90
    Days Past
    Due 91-120
    Days Past
    Due Over 120
    ABC Beauty 20,200 20,200
    Angel Wigs 7,800 7,800
    Zodiac Beauty 3,600 3,600
    Subtotals 1,296,400 748,100 293,500 113,000 38,000 19,400 84,400
    Arcade Beauty
    Creative Images
    Excel Hair Products
    First Class Hair Care
    Golden Images
    Oh That Hair
    One Stop Hair Designs
    Visions Hair & Nail
    Totals
    Percent uncollectible (%) % % % % % %
    Estimate of uncollectible accounts $ $ $ $ $ $ $

    3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
    $

    4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $3,700 before adjustment on December 31, 20Y7. Journalize the adjustment for uncollectible accounts. If an amount box does not require an entry, leave it blank.

    Dec. 31
    • Accounts Payable
    • Accounts Receivable
    • Allowance for Doubtful Accounts
    • Bad Debt Expense
    • Cash
    • Sales
    • Accounts Payable
    • Accounts Receivable
    • Allowance for Doubtful Accounts
    • Bad Debt Expense
    • Cash
    • Sales

    5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?

    On the balance sheet, assets would be

    • overstated
    • understated
    by $ because the allowance for doubtful accounts would be
    • overstated
    • understated
    by $. In addition, the stockholders’ equity (retained earnings) would be
    • overstated
    • understated
    by $ because bad debt expense would be
    • overstated
    • understated
    and net income
    • overstated
    • understated
    by $ on the income statement

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