Aging of Receivables; Estimating Allowance for Doubtful Accounts Wig Creations C
ID: 2586401 • Letter: A
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:
The following accounts were unintentionally omitted from the aging schedule:
Wig Creations has a past history of uncollectible accounts by age category, as follows:
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.
Feedback
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.
Feedback
3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
$
Feedback
4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $1,540 before adjustment on December 31, 20Y1. Journalize the adjustment for uncollectible accounts.
Feedback
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.
Days Past Due Balance Not Past Due 1-30 31-60 61-90 91-120 over 120 554,000 307,400 133,000 60,900 20,500 18,300 13,900Explanation / Answer
1.Number of days past due is the number of days between the due date of the account and the date of analysis.
Number of days past due for below mentioned companies are shown below:
Days past due is computed as follows:
2.
Updated Ageing of Receivables Schedule after adding all the omitted accounts is as shown below:
3.
Now allowance for doubtful accounts are computed by multiplying total amount of each class group by an estimated percentage of uncollectible accounts.
Estimated Percentage of each class group is shown below:
4.
The amount of adjusting entry is the difference between adjusted balances of allowance for doubtful accounts minus unadjusted balance of allowance for doubtful accounts.
The amount of the adjusting entry for uncollectible accounts is $37,750 which is journalized as under:
5.
When the entry of $37,759 is omitted then the Net revenue will be overstated in the Income statement because bad debt expense will not be recorded.
On the other hand allowance for doubtful accounts will be understated as it will have debit balance only.
Customer Due Date Date of Analysis Days past due AB May-28 Dec-31 217 CI Sep-07 Dec-31 115 EH Products Oct-17 Dec-31 75 FC Hair Care Oct-24 Dec-31 68 GI Nov-23 Dec-31 38 OTH Nov-29 Dec-31 32 OSHD Dec-02 Dec-31 29 VH and Nail Jan-05 Dec-31 0