M5 CNOW Homework (Ch 8)

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Aging of receivables; estimating allowance for doubtful accounts

Wig Creations 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:

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
ABC Beauty	19,700	19,700
Angel Wigs	7,300			7,300
Zodiac Beauty	3,700		3,700
Subtotals	1,293,300	751,200	286,700	128,200	35,700	15,100	76,400

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	August 17	$4,700
Creative Images	October 30	5,000
Excel Hair Products	July 3	8,800
First Class Hair Care	September 8	6,500
Golden Images	November 23	3,600
Oh That Hair	November 29	2,700
One Stop Hair Designs	December 7	6,700
Visions Hair & Nail	January 11	4,100

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	2
31-60 days past due	10
61-90 days past due	32
91-120 days past due	42
Over 120 days past due	78

Required:

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

Customer	Due Date	Number of Days Past Due
Arcade Beauty	August 17	fill in the blank 1 of 8 days
Creative Images	October 30	fill in the blank 1 of 8 days
Excel Hair Products	July 3	fill in the blank 1 of 8 days
First Class Hair Care	September 8	fill in the blank 1 of 8 days
Golden Images	November 23	fill in the blank 1 of 8 days
Oh That Hair	November 29	fill in the blank 1 of 8 days
One Stop Hair Designs	December 7	fill in the blank 1 of 8 days
Visions Hair & Nail	January 11	fill in the blank 1 of 8 days

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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.

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
ABC Beauty	19,700	19,700	blank	blank	blank	blank	blank
Angel Wigs	7,300	blank	blank	7,300	blank	blank	blank
Zodiac Beauty	3,700	blank	3,700		blank	blank
Subtotals	1,293,300	751,200	286,700	128,200	35,700	15,100	76,400
Arcade Beauty	Arcade Beauty	Arcade Beauty	Arcade Beauty	Arcade Beauty	Arcade Beauty	Arcade Beauty	Arcade Beauty
Creative Images	Creative Images	Creative Images	Creative Images	Creative Images	Creative Images	Creative Images	Creative Images
Excel Hair Products	Excel Hair Products	Excel Hair Products	Excel Hair Products	Excel Hair Products	Excel Hair Products	Excel Hair Products	Excel Hair Products
First Class Hair Care	First Class Hair Care	First Class Hair Care	First Class Hair Care	First Class Hair Care	First Class Hair Care	First Class Hair Care	First Class Hair Care
Golden Images	Golden Images	Golden Images	Golden Images	Golden Images	Golden Images	Golden Images	Golden Images
Oh That Hair	Oh That Hair	Oh That Hair	Oh That Hair	Oh That Hair	Oh That Hair	Oh That Hair	Oh That Hair
One Stop Hair Designs	One Stop Hair Designs	One Stop Hair Designs	One Stop Hair Designs	One Stop Hair Designs	One Stop Hair Designs	One Stop Hair Designs	One Stop Hair Designs
Visions Hair & Nail	Visions Hair & Nail	Visions Hair & Nail	Visions Hair & Nail	Visions Hair & Nail	Visions Hair & Nail	Visions Hair & Nail	Visions Hair & Nail
Totals	Totals	Totals	Totals	Totals	Totals	Totals	Totals
Percent uncollectible (%)		Percent uncollectible (%)%	Percent uncollectible (%)%	Percent uncollectible (%)%	Percent uncollectible (%)%	Percent uncollectible (%)%	Percent uncollectible (%)%
Estimate of uncollectible accounts	$Estimate of uncollectible accounts	$Estimate of uncollectible accounts	$Estimate of uncollectible accounts	$Estimate of uncollectible accounts	$Estimate of uncollectible accounts	$Estimate of uncollectible accounts	$Estimate of uncollectible accounts

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Add the accounts into the aging schedule based on their number of days past due.

Apply the respective uncollectible percentage to the total receivables in each days past due group and the not past due group.

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3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. fill in the blank 1 of 1$

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4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $3,000 before adjustment on December 31, 20Y7. Journalize the adjustment for uncollectible accounts. If an amount box does not require an entry, leave it blank.

Date	Account	Debit	Credit
Dec. 31	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseCash
	Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseCash

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5. Assuming 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 fill in the blank 1 of 9

overstatedunderstated

by fill in the blank 2 of 9$ because the allowance for doubtful accounts would be fill in the blank 3 of 9

overstatedunderstated

by fill in the blank 4 of 9$. In addition, the owner's equity (owner's capital) would be fill in the blank 5 of 9

overstatedunderstated

by fill in the blank 6 of 9$ because bad debt expense would be fill in the blank 7 of 9

overstatedunderstated

and net income fill in the blank 8 of 9

overstatedunderstated

by fill in the blank 9 of 9$ on the income statement.

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