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:

			Days Past Due
Customer	Balance	Not Past Due	1-30	31-60	61-90	91-120	Over 120
Subtotals	786,000	436,200	188,600	86,500	29,100	25,900	19,700

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 That Hair		Nov. 29, 20Y1	3,200
One Stop Hair Designs		Dec. 2, 20Y1	2,100
Visions Hair & 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	10
61-90 days past due	15
91-120 days past due	35
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	fill in the blank 17082f02ff84fbd_1 days
Creative Images	Sept. 7, 20Y1	fill in the blank 17082f02ff84fbd_2 days
Excel Hair Products	Oct. 17, 20Y1	fill in the blank 17082f02ff84fbd_3 days
First Class Hair Care	Oct. 24, 20Y1	fill in the blank 17082f02ff84fbd_4 days
Golden Images	Nov. 23, 20Y1	fill in the blank 17082f02ff84fbd_5 days
Oh That Hair	Nov. 29, 20Y1	fill in the blank 17082f02ff84fbd_6 days
One Stop Hair Designs	Dec. 2, 20Y1	fill in the blank 17082f02ff84fbd_7 days
Visions Hair & Nail	Jan. 5, 20Y2	fill in the blank 17082f02ff84fbd_8 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	fill in the blank 588abbfe2fa2076_1	fill in the blank 588abbfe2fa2076_2	fill in the blank 588abbfe2fa2076_3	fill in the blank 588abbfe2fa2076_4	fill in the blank 588abbfe2fa2076_5	fill in the blank 588abbfe2fa2076_6	fill in the blank 588abbfe2fa2076_7
Arcade Beauty	fill in the blank 588abbfe2fa2076_8	fill in the blank 588abbfe2fa2076_9	fill in the blank 588abbfe2fa2076_10	fill in the blank 588abbfe2fa2076_11	fill in the blank 588abbfe2fa2076_12	fill in the blank 588abbfe2fa2076_13	fill in the blank 588abbfe2fa2076_14
Creative Images	fill in the blank 588abbfe2fa2076_15	fill in the blank 588abbfe2fa2076_16	fill in the blank 588abbfe2fa2076_17	fill in the blank 588abbfe2fa2076_18	fill in the blank 588abbfe2fa2076_19	fill in the blank 588abbfe2fa2076_20	fill in the blank 588abbfe2fa2076_21
Excel Hair Products	fill in the blank 588abbfe2fa2076_22	fill in the blank 588abbfe2fa2076_23	fill in the blank 588abbfe2fa2076_24	fill in the blank 588abbfe2fa2076_25	fill in the blank 588abbfe2fa2076_26	fill in the blank 588abbfe2fa2076_27	fill in the blank 588abbfe2fa2076_28
First Class Hair Care	fill in the blank 588abbfe2fa2076_29	fill in the blank 588abbfe2fa2076_30	fill in the blank 588abbfe2fa2076_31	fill in the blank 588abbfe2fa2076_32	fill in the blank 588abbfe2fa2076_33	fill in the blank 588abbfe2fa2076_34	fill in the blank 588abbfe2fa2076_35
Golden Images	fill in the blank 588abbfe2fa2076_36	fill in the blank 588abbfe2fa2076_37	fill in the blank 588abbfe2fa2076_38	fill in the blank 588abbfe2fa2076_39	fill in the blank 588abbfe2fa2076_40	fill in the blank 588abbfe2fa2076_41	fill in the blank 588abbfe2fa2076_42
Oh That Hair	fill in the blank 588abbfe2fa2076_43	fill in the blank 588abbfe2fa2076_44	fill in the blank 588abbfe2fa2076_45	fill in the blank 588abbfe2fa2076_46	fill in the blank 588abbfe2fa2076_47	fill in the blank 588abbfe2fa2076_48	fill in the blank 588abbfe2fa2076_49
One Stop Hair Designs	fill in the blank 588abbfe2fa2076_50	fill in the blank 588abbfe2fa2076_51	fill in the blank 588abbfe2fa2076_52	fill in the blank 588abbfe2fa2076_53	fill in the blank 588abbfe2fa2076_54	fill in the blank 588abbfe2fa2076_55	fill in the blank 588abbfe2fa2076_56
Visions Hair & Nail	fill in the blank 588abbfe2fa2076_57	fill in the blank 588abbfe2fa2076_58	fill in the blank 588abbfe2fa2076_59	fill in the blank 588abbfe2fa2076_60	fill in the blank 588abbfe2fa2076_61	fill in the blank 588abbfe2fa2076_62	fill in the blank 588abbfe2fa2076_63
Total	fill in the blank 588abbfe2fa2076_64	fill in the blank 588abbfe2fa2076_65	fill in the blank 588abbfe2fa2076_66	fill in the blank 588abbfe2fa2076_67	fill in the blank 588abbfe2fa2076_68	fill in the blank 588abbfe2fa2076_69	fill in the blank 588abbfe2fa2076_70
Percent uncollectible		1%	3%	10%	15%	35%	80%
Estimate of uncollectible accounts	fill in the blank 588abbfe2fa2076_71	fill in the blank 588abbfe2fa2076_72	fill in the blank 588abbfe2fa2076_73	fill in the blank 588abbfe2fa2076_74	fill in the blank 588abbfe2fa2076_75	fill in the blank 588abbfe2fa2076_76	fill in the blank 588abbfe2fa2076_77

3.  Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
$fill in the blank 5c6c10fbeff704b_1

4.  Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $1,830 before adjustment on December 31, 20Y1. Journalize the adjustment for uncollectible accounts. If an amount box does not require an entry, leave it blank.

	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseCash	- Select -	- Select -
	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseCash	- Select -	- Select -

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 

overstatedunderstated

 by 

$52,932$51,102$51,100

 because the allowance for doubtful accounts would be 

overstatedunderstated

 by 

$52,932$51,102$51,100

. In addition, the owner’s capital account would be 

overstatedunderstated

 by 

$52,932$51,102$51,100

 because bad debt expense would be 

overstatedunderstated

 and net income 

overstatedunderstated

 by 

$52,932$51,102$51,100

 on the income statement.