Question
Aging of Receivables; Estimating The contra asset account for accounts receivable.Allowance for Doubtful Accounts Wig Creations Company supplies wigs and hair care products to beauty
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Aging of Receivables; Estimating The contra asset account for accounts receivable.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, 20Y7:
Not Days Past Due Past Customer Balance Due 1-30 31-60 61-90 91-120 Over 120 ABC Beauty 20,200 20,200 Angel Wigs 7,800 7,800 Zodiac Beauty 3,600 3,600 Subtotals 1,296,400 748,100 293,500 113,000 38,000 19,400 84,400
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 $5,500 Creative Images Oct. 30 5,200 Excel Hair Products July 3 8,400 First Class Hair Care Sept. 8 7,000 Golden Images Nov. 23 3,400 Oh That Hair Nov. 29 2,200 One Stop Hair Designs Dec. 7 6,800 Visions Hair & Nail Jan. 11 4,200
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 2 31-60 days past due 10 61-90 days past due 31 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 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 20,200 20,200 Angel Wigs 7,800 7,800 Zodiac Beauty 3,600 3,600 Subtotals 1,296,400 748,100 293,500 113,000 38,000 19,400 84,400 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 $3,700 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 - Accounts Payable
- Accounts Receivable
- Allowance for Doubtful Accounts
- Bad Debt Expense
- Cash
- Sales
- Accounts Payable
- Accounts Receivable
- Allowance for Doubtful Accounts
- Bad Debt Expense
- Cash
- Sales
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
- understated
by $ because the allowance for doubtful accounts would be - overstated
- understated
by $. In addition, the stockholders equity (retained earnings) would be - overstated
- understated
by $ because bad debt expense would be - overstated
- understated
and net income - overstated
- understated
by $ on the income statement
Aging of Receivables; Estimating The contra asset account for accounts receivable.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, 20Y7:
Not | Days Past Due | |||||||||||||
Past | ||||||||||||||
Customer | Balance | Due | 1-30 | 31-60 | 61-90 | 91-120 | Over 120 | |||||||
ABC Beauty | 20,200 | 20,200 | ||||||||||||
Angel Wigs | 7,800 | 7,800 | ||||||||||||
Zodiac Beauty | 3,600 | 3,600 | ||||||||||||
Subtotals | 1,296,400 | 748,100 | 293,500 | 113,000 | 38,000 | 19,400 | 84,400 |
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 | $5,500 | ||
Creative Images | Oct. 30 | 5,200 | ||
Excel Hair Products | July 3 | 8,400 | ||
First Class Hair Care | Sept. 8 | 7,000 | ||
Golden Images | Nov. 23 | 3,400 | ||
Oh That Hair | Nov. 29 | 2,200 | ||
One Stop Hair Designs | Dec. 7 | 6,800 | ||
Visions Hair & Nail | Jan. 11 | 4,200 |
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 | 2 | |
31-60 days past due | 10 | |
61-90 days past due | 31 | |
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 | 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 | 20,200 | 20,200 | |||||
Angel Wigs | 7,800 | 7,800 | |||||
Zodiac Beauty | 3,600 | 3,600 | |||||
Subtotals | 1,296,400 | 748,100 | 293,500 | 113,000 | 38,000 | 19,400 | 84,400 |
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 $3,700 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 |
| ||
|
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
- understated
- overstated
- understated
- overstated
- understated
- overstated
- understated
- overstated
- understated
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