Question

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, 20Y1:

			Days Past Due
Customer	Balance	Not Past Due	1-30	31-60	61-90	91-120	Over 120
Subtotals	907,000	503,300	217,700	99,800	33,600	29,900	22,700

The following accounts were unintentionally omitted from the aging schedule:

Customer	Due Date		Balance
Arcade Beauty		May 28, 20Y1	$2,800
Creative Images		Sept. 7, 20Y1	5,900
Excel Hair Products		Oct. 17, 20Y1	800
First Class Hair Care		Oct. 24, 20Y1	1,900
Golden Images		Nov. 23, 20Y1	600
Oh That Hair		Nov. 29, 20Y1	3,400
One Stop Hair Designs		Dec. 2, 20Y1	2,200
Visions Hair & Nail		Jan. 5, 20Y2	7,200

Wig Creations has a past history of uncollectible accounts by age category, as follows:

Age Class	Percent Uncollectible
Not past due	2	%
1-30 days past due	4
31-60 days past due	12
61-90 days past due	18
91-120 days past due	40
Over 120 days past due	75

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	May 28, 20Y1	fill in the blank 1f4b5bfff06e00e_1 days
Creative Images	Sept. 7, 20Y1	fill in the blank 1f4b5bfff06e00e_2 days
Excel Hair Products	Oct. 17, 20Y1	fill in the blank 1f4b5bfff06e00e_3 days
First Class Hair Care	Oct. 24, 20Y1	fill in the blank 1f4b5bfff06e00e_4 days
Golden Images	Nov. 23, 20Y1	fill in the blank 1f4b5bfff06e00e_5 days
Oh That Hair	Nov. 29, 20Y1	fill in the blank 1f4b5bfff06e00e_6 days
One Stop Hair Designs	Dec. 2, 20Y1	fill in the blank 1f4b5bfff06e00e_7 days
Visions Hair & Nail	Jan. 5, 20Y2	fill in the blank 1f4b5bfff06e00e_8 days

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.

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.

The amount of bad debt expense is affected by the balance in the allowance account.

Consider the effects of a contra asset not being recorded in terms of the balance sheet equation.

Consider the effects of an expense not being reported in terms of the income equation.

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, 20Y1
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
Subtotals	fill in the blank a76dce09bf8d072_1	fill in the blank a76dce09bf8d072_2	fill in the blank a76dce09bf8d072_3	fill in the blank a76dce09bf8d072_4	fill in the blank a76dce09bf8d072_5	fill in the blank a76dce09bf8d072_6	fill in the blank a76dce09bf8d072_7
Arcade Beauty	fill in the blank a76dce09bf8d072_8	fill in the blank a76dce09bf8d072_9	fill in the blank a76dce09bf8d072_10	fill in the blank a76dce09bf8d072_11	fill in the blank a76dce09bf8d072_12	fill in the blank a76dce09bf8d072_13	fill in the blank a76dce09bf8d072_14
Creative Images	fill in the blank a76dce09bf8d072_15	fill in the blank a76dce09bf8d072_16	fill in the blank a76dce09bf8d072_17	fill in the blank a76dce09bf8d072_18	fill in the blank a76dce09bf8d072_19	fill in the blank a76dce09bf8d072_20	fill in the blank a76dce09bf8d072_21
Excel Hair Products	fill in the blank a76dce09bf8d072_22	fill in the blank a76dce09bf8d072_23	fill in the blank a76dce09bf8d072_24	fill in the blank a76dce09bf8d072_25	fill in the blank a76dce09bf8d072_26	fill in the blank a76dce09bf8d072_27	fill in the blank a76dce09bf8d072_28
First Class Hair Care	fill in the blank a76dce09bf8d072_29	fill in the blank a76dce09bf8d072_30	fill in the blank a76dce09bf8d072_31	fill in the blank a76dce09bf8d072_32	fill in the blank a76dce09bf8d072_33	fill in the blank a76dce09bf8d072_34	fill in the blank a76dce09bf8d072_35
Golden Images	fill in the blank a76dce09bf8d072_36	fill in the blank a76dce09bf8d072_37	fill in the blank a76dce09bf8d072_38	fill in the blank a76dce09bf8d072_39	fill in the blank a76dce09bf8d072_40	fill in the blank a76dce09bf8d072_41	fill in the blank a76dce09bf8d072_42
Oh That Hair	fill in the blank a76dce09bf8d072_43	fill in the blank a76dce09bf8d072_44	fill in the blank a76dce09bf8d072_45	fill in the blank a76dce09bf8d072_46	fill in the blank a76dce09bf8d072_47	fill in the blank a76dce09bf8d072_48	fill in the blank a76dce09bf8d072_49
One Stop Hair Designs	fill in the blank a76dce09bf8d072_50	fill in the blank a76dce09bf8d072_51	fill in the blank a76dce09bf8d072_52	fill in the blank a76dce09bf8d072_53	fill in the blank a76dce09bf8d072_54	fill in the blank a76dce09bf8d072_55	fill in the blank a76dce09bf8d072_56
Visions Hair & Nail	fill in the blank a76dce09bf8d072_57	fill in the blank a76dce09bf8d072_58	fill in the blank a76dce09bf8d072_59	fill in the blank a76dce09bf8d072_60	fill in the blank a76dce09bf8d072_61	fill in the blank a76dce09bf8d072_62	fill in the blank a76dce09bf8d072_63
Total	fill in the blank a76dce09bf8d072_64	fill in the blank a76dce09bf8d072_65	fill in the blank a76dce09bf8d072_66	fill in the blank a76dce09bf8d072_67	fill in the blank a76dce09bf8d072_68	fill in the blank a76dce09bf8d072_69	fill in the blank a76dce09bf8d072_70
Percent uncollectible		2%	4%	12%	18%	40%	75%
Estimate of uncollectible accounts	fill in the blank a76dce09bf8d072_71	fill in the blank a76dce09bf8d072_72	fill in the blank a76dce09bf8d072_73	fill in the blank a76dce09bf8d072_74	fill in the blank a76dce09bf8d072_75	fill in the blank a76dce09bf8d072_76	fill in the blank a76dce09bf8d072_77

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.

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.

The amount of bad debt expense is affected by the balance in the allowance account.

Consider the effects of a contra asset not being recorded in terms of the balance sheet equation.

Consider the effects of an expense not being reported in terms of the income equation.

3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
$fill in the blank b3e2effda050076_1

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.

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.

The amount of bad debt expense is affected by the balance in the allowance account.

Consider the effects of a contra asset not being recorded in terms of the balance sheet equation.

Consider the effects of an expense not being reported in terms of the income equation.

4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $1,810 before adjustment on December 31, 20Y1. Journalize the adjustment for uncollectible accounts. If an amount box does not require an entry, leave it blank.

	Bad Debt Expense	fill in the blank a248e901103607e_2	fill in the blank a248e901103607e_3
	Allowance for Doubtful Accounts	fill in the blank a248e901103607e_5	fill in the blank a248e901103607e_6

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.

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.

The amount of bad debt expense is affected by the balance in the allowance account.

Consider the effects of a contra asset not being recorded in terms of the balance sheet equation.

Consider the effects of an expense not being reported in terms of the income equation.

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  by $69,631  because the allowance for doubtful accounts would be understated  by $69,631 . In addition, the owner’s capital account would be overstated  by $69,631  because bad debt expense would be understated  and net income overstated  by $69,631  on the income statement.

Answer 1

1.

Customer	Due Date	Number of Days Past Due
Arcade Beauty	May 28, 20Y1	217 days
Creative Images	Sept. 7, 20Y1	115 days
Excel Hair Products	Oct. 17, 20Y1	75 days
First Class Hair Care	Oct. 24, 20Y1	68 days
Golden Images	Nov. 23, 20Y1	38 days
Oh The Hair	Nov. 29, 20Y1	32 days
One Stop Hair Designs	Dec. 2, 20Y1	29 days
Visions Hair and Nail	Jan. 5, 20Y2	Not past due

2.

Aging of Receivables Schedule
December 31, 20Y1
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
Subtotals	$       907,000	$        503,300	$     217,700	$      99,800	$      33,600	$      29,900	$      22,700
Arcade Beauty	$          2,800						$        2,800
Creative Images	$          5,900					$        5,900
Excel Hair Products	$             800				$           800
First Class Hair Care	$          1,900				$        1,900
Golden Images	$             600			$           600
Oh The Hair	$          3,400			$        3,400
One Stop Hair Designs	$          2,200		$        2,200
Visions Hair and Nail	$          7,200	$           7,200
Total	$       931,800	$        510,500	$     219,900	$     103,800	$      36,300	$      35,800	$      25,500
Percent uncollectible		2%	4%	12%	18%	40%	75%
Estimate of uncollectible accounts	$        71,441	$         10,210	$        8,796	$      12,456	$        6,534	$      14,320	$      19,125

3.

Allowance for Doubtful Accounts = $71441

4.

Account Titles	Debit	Credit
Bad Debt Expense	$           69,631
Allowance for Doubtful Accounts		$             69,631