Question

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

Answer 1