Aging of Receivables; Estimating Allowance for DoubtfulAccounts
Wig Creations Company supplies wigs and hair care products tobeauty salons throughout Texas and the Southwest. The accountsreceivable clerk for Wig Creations prepared the following partiallycompleted aging of receivables schedule as of the end of businesson December 31, 20Y1:
| | | Days Past Due |
|---|
| Customer | Balance | Not Past Due | 1-30 | 31-60 | 61-90 | 91-120 | over 120 |
|---|
| Subtotals | 653,400 | 362,600 | 156,800 | 71,900 | 24,200 | 21,600 | 16,300 |
The following accounts were unintentionally omitted from theaging 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 byage category, as follows:
| Age Class | Percent Uncollectible |
|---|
| Not past due | 2 | % |
| 1-30 days past due | 4 | |
| 31-60 days past due | 10 | |
| 61-90 days past due | 15 | |
| 91-120 days past due | 35 | |
| Over 120 days past due | 75 | |
Required:
1. Determine the number of days past due foreach 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 scheduleby adding the omitted accounts to the bottom of the schedule andupdating 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 | | 2% | 4% | 10% | 15% | 35% | 75% |
| Estimate of uncollectible accounts | | | | | | | |
3. Estimate the allowance for doubtfulaccounts, based on the aging of receivables schedule.
$
4. Assume that the allowance for doubtfulaccounts for Wig Creations has a credit balance of $1,730 beforeadjustment on December 31, 20Y1. Journalize the adjustment foruncollectible accounts.
| Bad Debt Expense | | |
| Allowance for Doubtful Accounts | | |
5. Assume that the adjusting entry in (4) wasinadvertently omitted, how would the omission affect the balancesheet and income statement?
On the balance sheet, assets would be overstated by$47,426 because the allowance for doubtful accountswould be understated by $47,426 . In addition, theowner’s capital account would be overstated by$47,426 because bad debt expense would beunderstated and net income overstated by$47,426 on the income statement.
