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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, 20Y1: The following accounts were unintentionally omitted from the aging schedule: Wig Creations has a past history of uncollectible accounts by age category, as follows: Instructions 1. Determine the number of days past due for each of the preceding accounts. 2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals. 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. 4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $7,375 before adjustment on December 31, 20Y1. Journalize the adjustment for uncollectible accounts. 5. Assuming that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 9, Problem 2PB
Textbook Problem
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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, 20Y1:

Chapter 9, Problem 2PB, Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the , example  1

The following accounts were unintentionally omitted from the aging schedule:

Chapter 9, Problem 2PB, Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the , example  2

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

Chapter 9, Problem 2PB, Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the , example  3

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, 20Y1. Journalize the adjustment for uncollectible accounts.
  5. 5. Assuming that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?

(1)

To determine

Calculate the number of days each account is past due as of December 31, 20Y1.

Explanation of Solution

Accounts receivable: Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Due date: Due date is the maturity date on note/account, on due date the borrower is supposed to pay the debt.

Past due: Past due is the number of days of not receiving/making payment on the overdue account.

Analysis of receivables method: A method of determining the estimated uncollectible receivables based on the age of individual accounts receivable is known as analysis of receivables method. This method is otherwise known as aging of receivables method. Under analysis of receivables method, estimated bad debts would be treated as the desired adjusted balance for allowance for doubtful accounts.

Determine the number of days each account is past due as of December 31, 20Y1.

AccountDue DateNumber of days past due
A BeautyAugust 17, 20Y1136 days
C ImagesOctober 30, 20Y162 days
EH productsJuly3, 20Y1181 days
FCH CareSeptember 8, 20Y1114 days
G ImagesNovember 23, 20Y138 days
OT HairNovember 29, 20Y132 days
OSH DesignsDecember 7, 20Y124 days
V Hair & NailJanuary 11, 20Y2Not past due

Table (1)

Working note:

Calculate number of days past due for each account.

A BeautyPast due days
Number of days from August 18 to 3114 days
Number of days from September 1 to 3030 days
Number of days from October 1 to 31 31 days
Number of days from November 1 to 3030 days
Number of days from December 1 to 31 31 days
Total136 days

Table (2)

C Images AccountPast due days
Number of days from October 311 days
Number of d...

(2)

To determine

Complete the aging of receivables schedule, by adding the omitted accounts to the bottom of the schedule and update the totals.

(3)

To determine

Prepare an estimate for allowance for doubtful accounts, on the basis of aging of receivables schedule.

(4)

To determine

Journalize the adjusting entry for uncollectible accounts.

(5)

To determine

Identify the effect on the balance sheet and income statement, if adjusting entry is omitted unintentionally.

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Chapter 9 Solutions

Financial Accounting
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