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	847,000	470,000	203,300	93,200	31,300	28,000	21,200

The following accounts were unintentionally omitted from the aging schedule:

Customer	Due Date		Balance
Arcade Beauty		May 28, 20Y1	$2,800
Creative Images		Sept. 7, 20Y1	5,800
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	3,300
One Stop Hair Designs		Dec. 2, 20Y1	2,100
Visions Hair & Nail		Jan. 5, 20Y2	7,100

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	12
61-90 days past due	18
91-120 days past due	40
Over 120 days past due	80

Required:

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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 afbf9c000f8f06b_1 days
Creative Images	Sept. 7, 20Y1	fill in the blank afbf9c000f8f06b_2 days
Excel Hair Products	Oct. 17, 20Y1	fill in the blank afbf9c000f8f06b_3 days
First Class Hair Care	Oct. 24, 20Y1	fill in the blank afbf9c000f8f06b_4 days
Golden Images	Nov. 23, 20Y1	fill in the blank afbf9c000f8f06b_5 days
Oh That Hair	Nov. 29, 20Y1	fill in the blank afbf9c000f8f06b_6 days
One Stop Hair Designs	Dec. 2, 20Y1	fill in the blank afbf9c000f8f06b_7 days
Visions Hair & Nail	Jan. 5, 20Y2	fill in the blank afbf9c000f8f06b_8 days

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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 7263c9f87fccfff_1	fill in the blank 7263c9f87fccfff_2	fill in the blank 7263c9f87fccfff_3	fill in the blank 7263c9f87fccfff_4	fill in the blank 7263c9f87fccfff_5	fill in the blank 7263c9f87fccfff_6	fill in the blank 7263c9f87fccfff_7
Arcade Beauty	fill in the blank 7263c9f87fccfff_8	fill in the blank 7263c9f87fccfff_9	fill in the blank 7263c9f87fccfff_10	fill in the blank 7263c9f87fccfff_11	fill in the blank 7263c9f87fccfff_12	fill in the blank 7263c9f87fccfff_13	fill in the blank 7263c9f87fccfff_14
Creative Images	fill in the blank 7263c9f87fccfff_15	fill in the blank 7263c9f87fccfff_16	fill in the blank 7263c9f87fccfff_17	fill in the blank 7263c9f87fccfff_18	fill in the blank 7263c9f87fccfff_19	fill in the blank 7263c9f87fccfff_20	fill in the blank 7263c9f87fccfff_21
Excel Hair Products	fill in the blank 7263c9f87fccfff_22	fill in the blank 7263c9f87fccfff_23	fill in the blank 7263c9f87fccfff_24	fill in the blank 7263c9f87fccfff_25	fill in the blank 7263c9f87fccfff_26	fill in the blank 7263c9f87fccfff_27	fill in the blank 7263c9f87fccfff_28
First Class Hair Care	fill in the blank 7263c9f87fccfff_29	fill in the blank 7263c9f87fccfff_30	fill in the blank 7263c9f87fccfff_31	fill in the blank 7263c9f87fccfff_32	fill in the blank 7263c9f87fccfff_33	fill in the blank 7263c9f87fccfff_34	fill in the blank 7263c9f87fccfff_35
Golden Images	fill in the blank 7263c9f87fccfff_36	fill in the blank 7263c9f87fccfff_37	fill in the blank 7263c9f87fccfff_38	fill in the blank 7263c9f87fccfff_39	fill in the blank 7263c9f87fccfff_40	fill in the blank 7263c9f87fccfff_41	fill in the blank 7263c9f87fccfff_42
Oh That Hair	fill in the blank 7263c9f87fccfff_43	fill in the blank 7263c9f87fccfff_44	fill in the blank 7263c9f87fccfff_45	fill in the blank 7263c9f87fccfff_46	fill in the blank 7263c9f87fccfff_47	fill in the blank 7263c9f87fccfff_48	fill in the blank 7263c9f87fccfff_49
One Stop Hair Designs	fill in the blank 7263c9f87fccfff_50	fill in the blank 7263c9f87fccfff_51	fill in the blank 7263c9f87fccfff_52	fill in the blank 7263c9f87fccfff_53	fill in the blank 7263c9f87fccfff_54	fill in the blank 7263c9f87fccfff_55	fill in the blank 7263c9f87fccfff_56
Visions Hair & Nail	fill in the blank 7263c9f87fccfff_57	fill in the blank 7263c9f87fccfff_58	fill in the blank 7263c9f87fccfff_59	fill in the blank 7263c9f87fccfff_60	fill in the blank 7263c9f87fccfff_61	fill in the blank 7263c9f87fccfff_62	fill in the blank 7263c9f87fccfff_63
Total	fill in the blank 7263c9f87fccfff_64	fill in the blank 7263c9f87fccfff_65	fill in the blank 7263c9f87fccfff_66	fill in the blank 7263c9f87fccfff_67	fill in the blank 7263c9f87fccfff_68	fill in the blank 7263c9f87fccfff_69	fill in the blank 7263c9f87fccfff_70
Percent uncollectible		1%	3%	12%	18%	40%	80%
Estimate of uncollectible accounts	fill in the blank 7263c9f87fccfff_71	fill in the blank 7263c9f87fccfff_72	fill in the blank 7263c9f87fccfff_73	fill in the blank 7263c9f87fccfff_74	fill in the blank 7263c9f87fccfff_75	fill in the blank 7263c9f87fccfff_76	fill in the blank 7263c9f87fccfff_77

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3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. $fill in the blank 9daf64081f9b04c_1

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4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $1,610 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 -

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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

$61,425$59,815$59,800

because the allowance for doubtful accounts would be

overstatedunderstated

by

$61,425$59,815$59,800

. In addition, the owners capital account would be

overstatedunderstated

by

$61,425$59,815$59,800

because bad debt expense would be

overstatedunderstated

and net income

overstatedunderstated

by

$61,425$59,815$59,800

on the income statement.