Question

Using the information below, complete the requirements for each section.

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, 2018.
       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?
(d)     Assume Wiggins Corporation had credit sales of $8,000,000 and management estimated that 2% would be uncollectible. Prepare the necessary journal entry to record the bad debt expense under the % of sales allowance method. Show how accounts receivable and the related allowance for uncollectibles should appear on the balance sheet at December 31.

Answer 1