Question

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	660,200	366,500	158,400	72,600	24,400	21,800	16,500

The following accounts were unintentionally omitted from the aging schedule:

Customer	Due Date		Balance
Arcade Beauty		May 28, 20Y1	$2,900
Creative Images		Sept. 7, 20Y1	6,100
Excel Hair Products		Oct. 17, 20Y1	800
First Class Hair Care		Oct. 24, 20Y1	2,000
Golden Images		Nov. 23, 20Y1	700
Oh The Hair		Nov. 29, 20Y1	3,500
One Stop Hair Designs		Dec. 2, 20Y1	2,200
Visions Hair and Nail		Jan. 5, 20Y2	7,400

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	18
91-120 days past due	40
Over 120 days past due	80

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	days
Creative Images	Sept. 7, 20Y1	days
Excel Hair Products	Oct. 17, 20Y1	days
First Class Hair Care	Oct. 24, 20Y1	days
Golden Images	Nov. 23, 20Y1	days
Oh The Hair	Nov. 29, 20Y1	days
One Stop Hair Designs	Dec. 2, 20Y1	days
Visions Hair and Nail	Jan. 5, 20Y2	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, 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
Arcade Beauty
Creative Images
Excel Hair Products
First Class Hair Care
Golden Images
Oh The Hair
One Stop Hair Designs
Visions Hair and Nail
Total
Percent uncollectible		1%	3%	12%	18%	40%	80%
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 $1,630 before adjustment on December 31, 20Y1. Journalize the adjustment for uncollectible accounts.

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

Answer 1

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	Period End	Number of Days Past Due
Arcade Beauty	28-05-2001	31-12-2001	217
Creative Images	07-09-2001	31-12-2001	115
Excel Hair Products	17-10-2001	31-12-2001	75
First Class Hair Care	24-10-2001	31-12-2001	68
Golden Images	23-11-2001	31-12-2001	38
Oh The Hair	29-11-2001	31-12-2001	32
One Stop Hair Designs	02-12-2001	31-12-2001	29
Visions Hair and Nail	05-01-2002	31-12-2001	0
2.)
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	6,60,200	3,66,500	1,58,400	72,600	24,400	21,800	16,500
Arcade Beauty	2,900						2,900
Creative Images	6,100					6,100
Excel Hair Products	800				800
First Class Hair Care	2,000				2,000
Golden Images	700			700
Oh The Hair	3,500			3,500
One Stop Hair Designs	2,200		2,200
Visions Hair and Nail	7,400	7,400
Total	6,85,800	3,73,900	1,60,600	76,800	27,200	27,900	19,400
Percent uncollectible		1%	3%	12%	18%	40%	80%
Estimate of uncollectible accounts	49,349	3,739	4,818	9,216	4,896	11,160	15,520
3.)
Estimation of the allowance for doubtful accounts, based on the aging of receivables schedule
Allowance for doubtful accounts is $ 49,349 .
4.)
Journal Entry on December 31,20Y1
Account Titles	Debit	Credit
Bad Debt Expense	47,719
Allowance for doubtful accounts		47,719
(49,349 - 1,630 )
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