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, 2017: Not Days Past Due Past Customer Balance Due 1-30 31-60 61-90 91-120 Over 120 ABC Beauty 19,100 19,100 Angel Wigs 7,100 7,100 Zodiac Beauty 3,600 3,600 Subtotals 1,309,600 755,200 288,600 125,600 41,400 23,200 75,600 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 $4,900 Creative Images Oct. 30 5,200 Excel Hair Products July 3 8,700 Sept. 8 7,000 Nov. 23 3,600 First Class Hair Care Golden Images Oh That Hair One Stop Hair Designs Nov. 29 2,800 Dec. 7 7,100 Visions Hair & Nail Jan. 11 4,000 Wig Creations has a past history of uncollectible accounts by age category, as follows: Age Class Percent Uncollectible 1 % Not past due 1-30 days past due 2 31-60 days past due 12 61-90 days past due 29 91-120 days past due 42 Over 120 days past due 83 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. 17 136 days 62 days Creative Images Oct. 30 Excel Hair Products July 3 X days First Class Hair Care Sept. 8 114 days Golden Images Nov. 23 38 days Oh That Hair Nov. 29 32 days One Stop Hair Designs Dec. 7 24 days Visions Hair & Nail Jan. 11 0 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, 2017 Not Past Days Past Days Past Due Due 1-30 Due 31-60 Days Past Due 61-90 Balance Days Past Due 91-120 Days Past Due Over 120 7,100 19,100 19,100 7,100 3,600 1,309,600 755,200 3,600 288,600 125,600 41,400 23,200 75,600 Customer ABC Beauty Angel Wigs Zodiac Beauty Subtotals 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. Feedback Check My Work Add the accounts into the aging schedule based on their number of days past due. Apply the respective uncollectible percentage to the total receivables in each days past due group and the not past due group. 4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $4,800 before adjustment on December 31, 2017. Journalize the adjustment for uncollectible accounts. If an amount box does not require an entry, leave it blank. Dec. 31 Feedback Check My Work The amount of bad debt expense is affected by the balance in the allowance account. 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 by $ because the allowance for doubtful accounts would be by $ In addition, the stockholders' equity (retained earnings) would be by $ because bad debt expense would be and net income by $ on the income statement
