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, 20Y1: 23,00 over 120 17,900 Ver1230 Days Past Due Customer Balance Not Past Due 1-30 31-60 61-90 91-120 Subtotals 715,500 397,100 171,700 78,700 26,500 23,600 The following accounts were unintentionally omitted from the aging schedule: Customer Due Date Balance Arcade Beauty May 28, 2011 $2,700 Creative Images Sept. 7, 2011 5,700 Excel Hair Products Oct. 17, 2011 800 First Class Hair Care Oct. 24, 2011 1,900 Golden Images Nov. 23, 2011 600 Oh The Hair Nov. 29, 2011 3,200 One Stop Hair Designs Dec. 2, 2011 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: Percent Age Class Uncollectible Not past due Next > Check My Work Submit Assignment for Grading

Answer 1

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	715500.00	397100.00	171700.00	78700.00	26500.00	23600.00	17900.00
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	739400.00	404000.00	173800.00	82500.00	29200.00	29300.00	20600.00
Percent uncollectible		1%	3%	10%	15%	35%	75%
Estimate of uncollectible accounts	47589.00	4040.00	5214.00	8250.00	4380.00	10255.00	15450.00

3. Allowance for doubtful accounts: $47589

4.

Bad debt expense ($47589 - $1590)	45999
Allowance for doubtful accounts		45999

5. On the balance sheet, assets would be overstated by $45999 because the allowance for doubtful accounts would be understated by $45999. In addition, the owner's capital account would be overstated by $45999 because bad debt expense would be understated and net income overstated by $45999 on the income statement.