Aging of Receivables; Estimating 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, 20Y1:
Days Past Due | |||||||
Customer | Balance | Not Past Due | 1-30 | 31-60 | 61-90 | 91-120 | over 120 |
Subtotals | 661,200 | 367,000 | 158,700 | 72,700 | 24,500 | 21,800 | 16,500 |
The following accounts were unintentionally omitted from the aging schedule:
Customer | Due Date | Balance | ||
---|---|---|---|---|
Arcade Beauty | May 28, 20Y1 | $2,700 | ||
Creative Images | Sept. 7, 20Y1 | 5,700 | ||
Excel Hair Products | Oct. 17, 20Y1 | 800 | ||
First Class Hair Care | Oct. 24, 20Y1 | 1,900 | ||
Golden Images | Nov. 23, 20Y1 | 600 | ||
Oh The Hair | Nov. 29, 20Y1 | 3,200 | ||
One Stop Hair Designs | Dec. 2, 20Y1 | 2,100 | ||
Visions Hair and Nail | Jan. 5, 20Y2 | 6,900 |
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 | 3 | |
31-60 days past due | 12 | |
61-90 days past due | 18 | |
91-120 days past due | 40 | |
Over 120 days past due | 80 |
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 | May 28, 20Y1 | days |
Creative Images | Sept. 7, 20Y1 | days |
Excel Hair Products | Oct. 17, 20Y1 | days |
First Class Hair Care | Oct. 24, 20Y1 | days |
Golden Images | Nov. 23, 20Y1 | days |
Oh The Hair | Nov. 29, 20Y1 | days |
One Stop Hair Designs | Dec. 2, 20Y1 | days |
Visions Hair and Nail | Jan. 5, 20Y2 | 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, 20Y1 | |||||||
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 |
Subtotals | |||||||
Arcade Beauty | |||||||
Creative Images | |||||||
Excel Hair Products | |||||||
First Class Hair Care | |||||||
Golden Images | |||||||
Oh The Hair | |||||||
One Stop Hair Designs | |||||||
Visions Hair and Nail | |||||||
Total | |||||||
Percent uncollectible | 1% | 3% | 12% | 18% | 40% | 80% | |
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 $1,780 before adjustment on December 31, 20Y1. Journalize the adjustment for uncollectible accounts.
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 by because the allowance for doubtful accounts would be by . In addition, the owner’s capital account would be by because bad debt expense would be and net income
1.
Customer | Due Date | Number of Days Past Due | |
Arcade Beauty | May 28, 20Y1 | 217 | days |
Creative Images | Sept. 7, 20Y1 | 115 | days |
Excel Hair Products | Oct. 17, 20Y1 | 75 | days |
First Class Hair Care | Oct. 24, 20Y1 | 68 | days |
Golden Images | Nov. 23, 20Y1 | 38 | days |
Oh The Hair | Nov. 29, 20Y1 | 32 | days |
One Stop Hair Designs | Dec. 2, 20Y1 | 29 | days |
Visions Hair and Nail | Jan. 5, 20Y2 | 0 | days |
2.
Wig Creations Company | |||||||
Aging of Receivables Schedule | |||||||
December 31, 20Y1 | |||||||
Days Past Due | |||||||
Customer | Balance | Not Past Due | 1-30 | 31-60 | 61-90 | 91-120 | Over 120 |
Subtotals | 661200.00 | 367000.00 | 158700.00 | 72700.00 | 24500.00 | 21800.00 | 16500.00 |
Arcade Beauty | 2700.00 | 2700.00 | |||||
Creative Images | 5700.00 | 5700.00 | |||||
Excel Hair Products | 800.00 | 800.00 | |||||
First Class Hair Care | 1900.00 | 1900.00 | |||||
Golden Images | 600.00 | 600.00 | |||||
Oh The Hair | 3200.00 | 3200.00 | |||||
One Stop Hair Designs | 2100.00 | 2100.00 | |||||
Visions Hair and Nail | 6900.00 | 6900.00 | |||||
Total | 685100.00 | 373900.00 | 160800.00 | 76500.00 | 27200.00 | 27500.00 | 19200.00 |
Percent uncollectible | 1% | 3% | 12% | 18% | 40% | 80% | |
Estimate of uncollectible accounts | 48999.00 | 3739.00 | 4824.00 | 9180.00 | 4896.00 | 11000.00 | 15360.00 |
3. Allowance for doubtful accounts: $48999
4.
Bad debt expense ($48999 - $1780) | 47219 | |
Allowance for doubtful accounts | 47219 |
5. On the balance sheet, assets would be overstated by $47219 because the allowance for doubtful accounts would be understated by $47219. In addition, the owner's capital account would be overstated by $47219 because bad debt expense would be understated and net income overstated by $47219 on the income statement.
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