Chapter 8, Problem 8.2BPR

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, 20Y7:

The following accounts were unintentionally omitted from the aging schedule. Assume all due dates are for the current year except for Visions Hair & Nail, which is due in the next year.

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

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	4
31-60 days past due	16
61 -90 days past due	25
91-120 days past due	40
Over 120 days past due	80

Instructions

1. 1. Determine the number of days past due for each of the preceding accounts.
2. 2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.
3. 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
4. 4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $7,375 before adjustment on December 31. Journalize the adjustment for uncollectible accounts.
5. 5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?