Natural Hair Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Natural Hair prepared the following aging of receivables schedule as of the end of business on December 31, 2007.

Natural Hair Company has a past history of uncollectible accounts by age category, as shown below.

Age Class		Balance		Percent
				Uncollectible
Not past due		$575,000		1%
1-30 days past due		$140,500		2%
31-60 days past due		$82,700		8%
61-90 days past due		$36,000		15%
91-120 days past due		$25,000		35%
Over 120 day past due		$20,800		80%
Total		$880,000

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 -$ 3,500 (credit) before adjustment on December 31, 2007. 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 2007. Assume that instead of using the analysis of receivables method of estimating uncollectible accounts, Wigs Plus 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, 2008, Natural Hair wrote off a $ 4,350 account on 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, 2008 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, 2008.

b) The reinstatement and collection of the Top Dog Images account on August 17, 2008.

7. Does Amazon.com use the direct write-off or allowance method of accounting for uncollectible accounts receivable? Explain.