eBookPrint Item Question Content Area 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, 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 19,100 19,100 Angel Wigs 7,900 7,900 Zodiac Beauty 4,000 4,000 Subtotals 1,304,000 755,600 287,600 117,300 43,300 24,100 76,100 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 August 17 $5,100 Creative Images October 30 4,400 Excel Hair Products July 3 8,100 First Class Hair Care September 8 7,500 Golden Images November 23 3,200 Oh That Hair November 29 2,400 One Stop Hair Designs December 7 7,000 Visions Hair & Nail January 11 4,100 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 30 91-120 days past due 41 Over 120 days past due 79 Required: Question Content Area 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 August 17 fill in the blank 1 of 8 136 days Creative Images October 30 fill in the blank 1 of 8 62 days Excel Hair Products July 3 fill in the blank 1 of 8 181 days First Class Hair Care September 8 fill in the blank 1 of 8 114 days Golden Images November 23 fill in the blank 1 of 8 38 days Oh That Hair November 29 fill in the blank 1 of 8 32 days One Stop Hair Designs December 7 fill in the blank 1 of 8 24 days Visions Hair & Nail January 11 fill in the blank 1 of 8 0 days Feedback Area Feedback Count the number of days after the due date up to December 31. Do not include the due date in your count. Remember that not all months have an equal number of days. Question Content Area 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 19,100 19,100 blank blank blank blank blank Angel Wigs 7,900 blank blank 7,900 blank blank blank Zodiac Beauty 4,000 blank 4,000 blank blank Subtotals 1,304,000 755,600 287,600 117,300 43,300 24,100 76,100 Arcade Beauty Arcade Beauty 5,100 Arcade Beauty 0 Arcade Beauty 0 Arcade Beauty 0 Arcade Beauty 0 Arcade Beauty 0 Arcade Beauty 5,100 Creative Images Creative Images 4,400 Creative Images 0 Creative Images 0 Creative Images 0 Creative Images 4,400 Creative Images 0 Creative Images 0 Excel Hair Products Excel Hair Products 8,100 Excel Hair Products 0 Excel Hair Products 0 Excel Hair Products 0 Excel Hair Products 0 Excel Hair Products 0 Excel Hair Products 8,100 First Class Hair Care First Class Hair Care 7,500 First Class Hair Care 0 First Class Hair Care 0 First Class Hair Care 0 First Class Hair Care 0 First Class Hair Care 7,500 First Class Hair Care 0 Golden Images Golden Images 3,200 Golden Images 0 Golden Images 0 Golden Images 3,200 Golden Images 0 Golden Images 0 Golden Images 0 Oh That Hair Oh That Hair 2,400 Oh That Hair 0 Oh That Hair 0 Oh That Hair 2,400 Oh That Hair 0 Oh That Hair 0 Oh That Hair 0 One Stop Hair Designs One Stop Hair Designs 7,000 One Stop Hair Designs 0 One Stop Hair Designs 7,000 One Stop Hair Designs 0 One Stop Hair Designs 0 One Stop Hair Designs 0 One Stop Hair Designs 0 Visions Hair & Nail Visions Hair & Nail 4,100 Visions Hair & Nail 4,100 Visions Hair & Nail 0 Visions Hair & Nail 0 Visions Hair & Nail 0 Visions Hair & Nail 0 Visions Hair & Nail 0 Totals Totals 1,345,800 Totals 759,700 Totals 294,600 Totals 122,900 Totals 47,700 Totals 31,600 Totals 89,300 Percent uncollectible (%) Percent uncollectible (%) 1 % Percent uncollectible (%) 3 % Percent uncollectible (%) 12 % Percent uncollectible (%) 30 % Percent uncollectible (%) 41 % Percent uncollectible (%) 79 % Estimate of uncollectible accounts $Estimate of uncollectible accounts 128,996 $Estimate of uncollectible accounts 7,597 $Estimate of uncollectible accounts 8,838 $Estimate of uncollectible accounts 14,748 $Estimate of uncollectible accounts 14,310 $Estimate of uncollectible accounts 12,956 $Estimate of uncollectible accounts 70,547 Feedback Area Feedback Add the accounts into the aging schedule based on their number of days past due. Apply the respective uncollectible percentage to the total receivables in each days past due group and the not past due group. Question Content Area 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. fill in the blank 1 of 1$ 128,996 Feedback Area Feedback 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. Question Content Area 4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $4,700 before adjustment on December 31, 20Y7. Journalize the adjustment for uncollectible accounts. If an amount box does not require an entry, leave it blank. DateAccountDebitCredit Dec. 31 Bad Debt Expense Bad Debt Expense 133,696 Bad Debt Expense 0 Allowance for Doubtful Accounts Allowance for Doubtful Accounts 0 Allowance for Doubtful Accounts 128,996 Feedback Area Feedback The amount of bad debt expense is affected by the balance in the allowance account. Question Content Area 5. Assuming that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement? On the balance sheet, assets would be fill in the blank 1 of 9 overstated by fill in the blank 2 of 9$ because the allowance for doubtful accounts would be fill in the blank 3 of 9 understated by fill in the blank 4 of 9$ . In addition, the stockholders equity (retained earnings) would be fill in the blank 5 of 9 overstated by fill in the blank 6 of 9$ because bad debt expense would be fill in the blank 7 of 9 understated and net income fill in the blank 8 of 9 overstated by fill in the blank 9 of 9$ on the income statement. 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