Question

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	20,100		20,100
Angel Wigs	7,800						7,800
Zodiac Beauty	3,700				3,700
Subtotals	1,308,700		757,000		283,900		125,300		41,000		24,200		77,300

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	5,100
Excel Hair Products		July 3	8,200
First Class Hair Care		Sept. 8	6,600
Golden Images		Nov. 23	3,500
Oh That Hair		Nov. 29	2,800
One Stop Hair Designs		Dec. 7	6,400
Visions Hair & Nail		Jan. 11	4,500

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	11
61-90 days past due	32
91-120 days past due	39
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	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	20,100	20,100
Angel Wigs	7,800			7,800
Zodiac Beauty	3,700		3,700
Subtotals	1,308,700	757,000	283,900	125,300	41,000	24,200	77,300
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 $4,100 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	Bad Debt Expense
	Allowance for Doubtful 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 overstated  by $ because the allowance for doubtful accounts would be understated  by $. In addition, the stockholders’ equity (retained earnings) would be overstated  by $ because bad debt expense would be understated  and net income overstated  by $ on the income statement.

Answer 1

Ans 1 Working for Number of Days Outstanding August 2017 Sep 2017 Oct 2017 Nov 2017 Dec 2017 Customer July 2017 Total 136 31 31 31 31114 Arcade Beauty Creative Images Excel Hair Products First Class Hair Care Golden Images Oh That Hair One Stop Hair Designs Visions Hair & Nail OOOOOOO 24 31 32 24 oool Ans 2 Days past Days past Days past Days past Number of Due Date Balance Days Past Due Aug. 17 136 $5,200 Oct. 30 62 $5,100 July 3 181 $8,200 Sept. 8 114 $6,600 Nov. 23 $3,500 Nov. 29 $2,800 Dec. 7 $6,400 Jan 11 $4,500 Wig Creations Company Ageing of Receivable Schedule December 31, 2017 Balance Not past Due Days past $20,100 $20,100 $7,800 $3,700 $3,700 $13,08,700 $7,57,000 $2,83,900 $5,200 $5,100 $8,200 $6,600 $3,500 $2,800 $6,400 $6,400 $0 $13,46,500 $7,57,000 $2,90,300 1% 3% $1,30,079 $7,570 $8,709 $7,800 $1,25,300 $41,000 $24,200 $77,300 $5,200 $5,100 Customer ABC Beauty Angel Wigs Zodiac Beauty Subtal Arcade Beauty Creative Images Excel Hair Products First Class Hair Care Golden Images Oh That Hair One Stop Hair Designs Visions Hair & Nail Totals (A) Percentage Uncollectible (%) (B) Estimate of Uncollectible Accounts (A) x (B) $8,200 $6,600 $3,500 $2,800 $1,31,600 11% $14,476 $46,100 32% $14,752 $30,800 39% $12,012 $90,700 80% $72,560

Ans 3 The allowace for doubtfull accounts based on ageing of receivable is $1,30,079 Ans 4| The allowace for doubtfull accounts based on ageing of receivable is Less: Credit balance in Allowance for Doubtful accounts before adj. entry Bad Debt Entry to be passed $1,30,079 ($4,100) $1,25,979 Post Ref Credit Journal Entry Date Description Dec 31, Bad Debt Expense Allowance for doubtful accounts Debit $1,25,979 $1,25,979 Ans 5 On the balance sheet, assets would be overstated by $125979 because the allowance for doubtful accounts would be understated $125979 In addition, the stockholders' equity (retained earnings) would be overstated by $125979 because bad debt expense would be understated and Net income overstated by $125979 on the income statement.