PR 9-2A Aging of receivables; estimating allowance for doubtful accounts

Angler’s Dream Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Angler’s Dream prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2011:

The following accounts were unintentionally omitted from the aging schedule:

Customer                                            Due Date                        Balance 

Antelope Sports & Flies                June 21, 2011                      $ 3,000 

Big Hole Flies                               Aug. 30, 2011                         6,500 

Charlie’s Fish Co.                           Sept. 8, 2011                        12,000 

Deschutes Sports                           Oct.  20, 2011                        4,000 

Green River Sports                        Nov.  7, 2011                        3,500 

Smith River Co.                            Nov. 28, 2011                        1,500 

Wild Trout Company                     Dec.  5, 2011                        5,000 

Wolfe Sports                                   Jan.  7, 2012                        4,500

Angler’s Dream 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                                        8 

61–90 days past due                                       25 

91–120 days past due                                     45 

Over 120 days past due                                  80

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 Angler’s Dream Company has a debit balance of $1,405 before adjustment on December 31, 2011. Journalize the adjusting entry for uncollectible accounts. 

5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?

Answer:

1.
                        Customer                       Due Date                 Number of Days Past Due  
Antelope Sports & Flies                    June 21, 2011      193 days (9 + 31 + 31 + 30 + 31 + 30 + 31)
Big Hole Flies                                   Aug. 30, 2011      123 days (1 + 30 + 31 + 30 + 31)
Charlie’s Fish Co.                               Sept. 8, 2011      114 days (22 + 31 + 30 + 31)
Deschutes Sports                                Oct. 20, 2011      72 days (11 + 30 + 31)
Green River Sports                              Nov. 7, 2011      54 days (23 + 31)
Smith River Co.                                 Nov. 28, 2011      33 days (2 + 31)
Wild Trout Company                           Dec. 5, 2011      26 days
Wolfe Sports                                         Jan. 7, 2012      Not past due 

2. and 3.

Aging of Receivables Schedule 2 December 31, 2011 3    Days Past Due 
4  Customer Balance 
Not Past Due 1–30 31–60 61–90 91–120 Over 120 5  AAA Fishery 20,000 20,000  6  Blue Ribbon Flies 7,500 7,500   
30  Z Fish Co. 4,000 4,000  31  Subtotals 1,060,00 500,000 315,000 120,000 40,000 25,000 60,000 32  Ant. Sports & Flies 3,000  3,000 33  Big Hole Flies 6,500  6,500 34  Charlie’s Fish Co. 12,000 12,000 35  Deschutes Sports 4,000 4,000  36  Green River Sports 3,500 3,500  37  Smith River Co. 1,500 1,500  38  Wild Trout Company 5,000 5,000  39  Wolfe Sports 4,500 4,500  40  Totals 1,100,00 504,500 320,000 125,000 44,000 37,000 69,500 41  Percent uncollectible 1% 4% 8% 25% 45% 80%
42  Estimate of   uncollectible accounts 111,095 5,045 12,800 10,000 11,000 16,650 
55,6 00
4.
Bad Debt Expense......................................................... 112,500  
                  Allowance for Doubtful Accounts...........................  112,500    
                      Uncollectible accounts estimate.    
                         ($111,095 + $1,405)  
5. On the balance sheet, assets would be overstated by $112,500 since the allowance of doubtful accounts would be understated by $112,500.
6. In addition, the owner’s capital account would be overstated by $112,500 since bad debt expense would be understated and net income overstated by $112,500 on the income statement.