Question

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, 20Y7:

			Not		Days Past Due
			Past
Customer	Balance		Due		1-30		31-60		61-90		91-120		Over 120
ABC Beauty	19,000		19,000
Angel Wigs	7,100						7,100
Zodiac Beauty	3,500				3,500
Subtotals	1,313,600		759,300		296,200		112,500		43,100		19,500		83,000

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	$5,200
Creative Images		Oct. 30	4,900
Excel Hair Products		July 3	8,900
First Class Hair Care		Sept. 8	6,500
Golden Images		Nov. 23	3,500
Oh That Hair		Nov. 29	2,300
One Stop Hair Designs		Dec. 7	7,100
Visions Hair & Nail		Jan. 11	4,600

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	8
61-90 days past due	28
91-120 days past due	39
Over 120 days past due	77

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	19,000	19,000
Angel Wigs	7,100			7,100
Zodiac Beauty	3,500		3,500
Subtotals	1,313,600	759,300	296,200	112,500	43,100	19,500	83,000
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 $4,600 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

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 stockholders’ equity (retained earnings) would be   by $ because bad debt expense would be   and net income   by $ on the income statement.

Answer 1