Use the information below to answer the questions that follow. Wiggins Corporation utilizes an accounting software package
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Use the information below to answer the questions that follow. | |||||
Wiggins Corporation utilizes an accounting software package that is capable of producing a detailed aging of outstanding accounts receivable. Following is the aging schedule as of December 31, 20X2. | |||||
AGE | AMOUNT OUTSTANDING | ||||
0 to 30 days | $ 1,200,000 | ||||
31 to 60 days | 700,000 | ||||
61 to 120 days | 200,000 | ||||
Over 120 days | 25,000 | ||||
Casper Wiggins has owned and operated Wiggins Corporation for many years and has a very good sense of the probability of collection of outstanding receivables, based on an aging analysis. The following table reveals the likelihood of collection: | |||||
AGE | PROBABILITY OF COLLECTION | ||||
0 to 30 days | 98% | ||||
31 to 60 days | 90% | ||||
61 to 120 days | 75% | ||||
Over 120 days | 50% | ||||
(a) | Prepare an aging analysis, and show how accounts receivable and the related allowance for uncollectibles should appear on the balance sheet at December 31. | ||||
(b) | Prepare the necessary journal entry to update the allowance for uncollectibles, assuming the balance prior to preparing the aging was a $15,000 credit. | ||||
(c) | Prepare the necessary journal entry to update the allowance for uncollectibles, assuming the balance prior to preparing the aging was a $5,000 debit. How could the allowance account have contained a debit balance? |
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