Averys All-Natural Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Averys All- Natural prepared the following aging-of-receivables schedule as of the end of business on December 31, 20Y7:

Averys All-Natural Company 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 ................................ 3
31-60 days past due .............................. 7
61-90 days past due ............................. 16
91-120 days past due ........................... 40
Over 120 days past due ........................ 90
1. Estimate the allowance for doubtful accounts, based on the aging-of-receivables schedule.
2. Assume that the allowance for doubtful accounts for Averys All-Natural Company has a negative balance of $(2,250) before adjustment on December 31, 20Y7. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts.
3. Averys All-Natural Company reported credit sales of $2,400,000 during 20Y7. Assume that instead of using the analysis of receivables method of estimating uncollectible accounts, Natural Hair Company uses the percent of sales method and estimates that 2.5% of sales will be uncollectible. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts using the percent of sales method.
4. Assume that on March 4, 20Y8, Averys All-Natural wrote off the $2,950 account of Superior Images as uncollectible. Illustrate the effect on the accounts and financial statements of the write-off of the Superior Images account.
5. Assume that on August 17, 20Y8, Superior Images paid $2,950 on its account. Illustrate the effect on the accounts and financial statements of reinstating and collecting the Superior Images account.
6. Assume that instead of using the allowance method, Averys All-Natural uses the direct write-off method. Illustrate the effect on the accounts and financial statements of the following:
a. The write-off of the Superior Images account on March 4, 20Y8.
b. The reinstatement and collection of the Superior Images account on August 17, 20Y8.

Transcribed Image Text:

1) Not Past Days Past Due GINGstea.er Ralaa'n 1-3031-60 61-90 91-120 Over 120 4 AAA Beauty 27,50027,500 Amelia's Wigs 3,750 30 Zim's Beauty 31 Totals 1,650 1,650 1,100,000 750,000180,000 75,000 45,000 22,000 28,000