Aging of Receivables; Estimating Allowance for DoubtfulAccounts

Wig Creations Company supplies wigs and hair care products tobeauty salons throughout Texas and the Southwest. The accountsreceivable clerk for Wig Creations prepared the following partiallycompleted aging of receivables schedule as of the end of businesson December 31, 20Y1:

			Days Past Due
Customer	Balance	Not Past Due	1-30	31-60	61-90	91-120	over 120
Subtotals	653,400	362,600	156,800	71,900	24,200	21,600	16,300

The following accounts were unintentionally omitted from theaging schedule:

Customer	Due Date		Balance
Arcade Beauty		May 28, 20Y1	$2,700
Creative Images		Sept. 7, 20Y1	5,700
Excel Hair Products		Oct. 17, 20Y1	800
First Class Hair Care		Oct. 24, 20Y1	1,900
Golden Images		Nov. 23, 20Y1	600
Oh The Hair		Nov. 29, 20Y1	3,200
One Stop Hair Designs		Dec. 2, 20Y1	2,100
Visions Hair and Nail		Jan. 5, 20Y2	6,900

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

Age Class	Percent Uncollectible
Not past due	2	%
1-30 days past due	4
31-60 days past due	10
61-90 days past due	15
91-120 days past due	35
Over 120 days past due	75

Required:

1. Determine the number of days past due foreach 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 scheduleby adding the omitted accounts to the bottom of the schedule andupdating 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		2%	4%	10%	15%	35%	75%
Estimate of uncollectible accounts

3. Estimate the allowance for doubtfulaccounts, based on the aging of receivables schedule.
$

4. Assume that the allowance for doubtfulaccounts for Wig Creations has a credit balance of $1,730 beforeadjustment on December 31, 20Y1. Journalize the adjustment foruncollectible accounts.

	Bad Debt Expense
	Allowance for Doubtful Accounts

5. Assume that the adjusting entry in (4) wasinadvertently omitted, how would the omission affect the balancesheet and income statement?

On the balance sheet, assets would be overstated  by$47,426  because the allowance for doubtful accountswould be understated  by $47,426 . In addition, theowner’s capital account would be overstated  by$47,426  because bad debt expense would beunderstated  and net income overstated  by$47,426  on the income statement.