Instructions 1. Estimate the allowance for doubtful accounts, based on the aging-of-receivables schedule. 2. Assume that the allowance for doubtful accounts for Natural Hair Company has a negative balance of 2$3,500 before adjustment on December 31, 2012. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts. 3. Natural Hair Company reported credit sales of $5,000,000 during 2012. Assume that instead of using the analysis of receivables method of estimating uncollectible accounts, Natural Hair Company uses the percent of sales method and estimates that 1.25% of sales will be uncollectible. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts using the percent of sales method. 4. Assume that on March 4, 2013, Natural Hair wrote off the $4,350 account of Top Dog Images as uncollectible. Illustrate the effect on the accounts and financial statements of the write-off of the Top Dog Images account. 5. Assume that on August 17, 2013, Top Dog Images paid $4,350 on its account. Illustrate the effect on the accounts and financial statements of reinstating and collecting the Top Dog Images account. 6. Assume that instead of using the allowance method, Natural Hair uses the direct write-off method. Illustrate the effect on the accounts and financial statements of the following: a. The write-off of the Top Dog Images account on March 4, 2013. b. The reinstatement and collection of the Top Dog Images account on August 17, 2013.

Problem 6-1 Name: Section: Score: 69% *Since some answer boxes are correct when left blank, the beginning score is greater than 0%. Key Code: 2 Instructions Answers are entered in the cells with gray backgrounds. Cells with non-gray backgrounds are protected and cannot be edited. A red asterisk (*) will appear in the column to the right of an incorrect answer. 1. Aging of Receivables Schedule December 31, 2012 Days Past Due Customer Balance Not Past Due 130 3160 6190 91120 Over 120 AAA Beauty $19,500 $20,000 Amelia's Wigs 8,000 # ## $11,000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Zim's Beauty 6,100 2,900 Totals Percentage uncollectible Estimate of uncoll. accounts $880,000 $45,966 $575,000 1% $5,750 2-6. Statement of Cash Flows $140,500 2% $2,810 $82,700 8% $6,616 $36,000 15% $5,400 Balance Sheet Assets = Liabilities Accounts Allow. For + Receivable Doubtful Accts. = $25,000 35% $8,750 + $20,800 80% $16,640 Stockholders' Equity Retained Earnings 2. 3. Dec. 31, 2012 Dec. 31, 2012 Income Statement Bad debt exp. Bad debt exp. 4. 5. Mar. 4, 2013 Aug. 17, 2013 Aug. 17, 2013 Mar. 4, 2013 Aug. 17, 2013 Bad debt exp. Bad debt exp. 6. a. 6. b. Cash Aug. 17, 2013 7. Amazon.com uses the allowance method since GAAP requires it when there is a large amount of receivables. + =IF(sol.!$C$5="OFF","",AD10)