70.2K

Verified Solution

Link Copied!

Aging of receivables; estimating allowance for doubtful accounts

Instructions

Chart of Accounts

Starting Question

Aging of Receivables Schedule

Additional Question

Journal

Final Question

Instructions

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, 2015:

1	A	B	C	D	E	F	G	H
2				Days Past Due	Days Past Due	Days Past Due	Days Past Due	Days Past Due
3	Customer	Balance	Not Past Due	1-30	31-60	61-90	91-120	Over 120
4	ABC Beauty	15,000.00	15,000.00
5	Angel Wigs	8,000.00			8,000.00
6	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~
7	Zodiac Beauty	3,000.00		3,000.00
8	Subtotals	875,000.00	415,000.00	210,000.00	112,000.00	55,000.00	18,000.00	65,000.00

The following accounts were unintentionally omitted from the aging schedule:

Customer	Due Date	Balance
Arcade Beauty	Aug. 17, 2015	$10,000
Creative Images	Oct. 30, 2015	8,500
Excel Hair Products	July 3, 2015	7,500
First Class Hair Care	Sept. 8, 2015	6,600
Golden Images	Nov. 23, 2015	3,600
Oh That Hair	Nov. 29, 2015	1,400
One Stop Hair Designs	Dec. 7, 2015	4,000
Visions Hair & Nail	Jan. 11, 2016	9,000

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

Age Class	Percent Uncollectible
Not past due	1%
130 days past due	4%
3160 days past due	16%
6190 days past due	25%
91120 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.
2.	Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.
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 $7,375 before adjustment on December 31, 2015. Journalize the adjustment for uncollectible accounts. Refer to the chart of accounts for a listing of the account titles the company uses.
5.	Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?

Chart of Accounts

CHART OF ACCOUNTS
Wig Creations Company
General Ledger
ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable-Arcade Beauty 122 Accounts Receivable-Creative Images 123 Accounts Receivable-Excel Hair Products 124 Accounts Receivable-First Class Hair Care 125 Accounts Receivable-Golden Images 126 Accounts Receivable-Oh That Hair 127 Accounts Receivable-One Stop Hair Designs 128 Accounts Receivable-Visions Hair & Nail 129 Allowance for Doubtful Accounts 131 Interest Receivable 132 Notes Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Owner, Capital 311 Owner, Drawing 312 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 520 Sales Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Store Equipment 523 Delivery Expense 524 Repairs Expense 529 Selling Expenses 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Office Supplies Expense 535 Store Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Bad Debt Expense 539 Miscellaneous Expense 710 Interest Expense

Starting Question

1. Determine the number of days past due for each of the following accounts. If an account is not past due, enter a zero.

Customer	Due Date	Number of Days Past Due
Arcade Beauty	Aug. 17, 2015	days
Creative Images	Oct. 30, 2015	days
Excel Hair Products	July 3, 2015	days
First Class Hair Care	Sept. 8, 2015	days
Golden Images	Nov. 23, 2015	days
Oh That Hair	Nov. 29, 2015	days
One Stop Hair Designs	Dec. 7, 2015	days
Visions Hair & Nail	Jan. 11, 2016	days

Aging of Receivables Schedule

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.

Aging of Receivables Schedule

December 31, 2015

1				Days Past Due	Days Past Due	Days Past Due	Days Past Due	Days Past Due
2	Customer	Balance	Not Past Due	1-30	31-60	61-90	91-120	Over 120
3	ABC Beauty	15,000.00	15,000.00
4	Angel Wigs	8,000.00			8,000.00
5	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~	~~~~~
6	Zodiac Beauty	3,000.00		3,000.00
7	Subtotals	875,000.00	415,000.00	210,000.00	112,000.00	55,000.00	18,000.00	65,000.00
8	Arcade Beauty
9	Creative Images
10	Excel Hair Products
11	First Class Hair Care
12	Golden Images
13	Oh That Hair
14	One Stop Hair Designs
15	Visions Hair & Nail
16	Totals
17	Percentage uncollectible
18	Estimate of uncollectible accounts

Additional Question

3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.

$

Journal

4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $7,375 before adjustment on December 31, 2015. Journalize the adjustment for uncollectible accounts. Refer to the chart of accounts for a listing of the account titles the company uses.

PAGE 1

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2

Final Question

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 because the allowance for doubtful accounts would be ___ by . In addition, the owners capital account would be ___ by because bad debt expense would be ___ and net income __ by__ on the income statement.

Answer & Explanation Solved by verified expert

See Answer