Question

The following information is available for Quality Book Sales's sales on account and accounts receivable:
Accounts Receivable Balance, January 1, Year 2 $ 78,500
Allowance for Doubtful Accounts, January 1, Year 2 4,710
Sales on Account, Year 2 550,000
Collections of Accounts Receivable, Year 2 556,000
After several collection attempts, Quality Book Sales wrote off $2,850 of accounts that could not be collected. Quality Book Sales estimates that 0.5 percent of sales on account will be uncollectible.
Required
Compute the following amounts:
(1) Using the allowance method, the amount of uncollectible accounts expense for Year 2.
(2) Net realizable value of receivables at the end of Year 2.

Answer 1

Answer:

1) Amount of uncollectible accounts expenses is $ 2,750

2) Net realizable value of receivables at the end of Year 2 is $65,040

Explanation:

Accounts Receivable Balance, January 1, Year 2 = $ 78,500

Allowance for Doubtful Accounts, January 1, Year 2 = $4,710

Sales on Account, Year 2 = $550,000

Collections of Accounts Receivable, Year 2 = $556,000

1) Amount of uncollectible accounts expenses = $550,000 ×0.5% = $ 2,750

2) Allowance for doubtful accounts, beginning balance = $4,710

Less: Write off = $ -2,850

Add: Uncollectible accounts expense for the year = $2,750

Allowance for doubtful accounts, ending balance = $4,610

Accounts receivable, Beginning balance =$78,500

Add: Credit sales = $550,000

Less: Collections = $-556,000

Less: Write off = $-2,850

Accounts receivable, Ending balance = $69,650

Accounts receivable, Ending balance = $69,650

Less: Allowance for doubtful accounts, ending balance = $-4,610

Net realizable value = $65,040

Answer 2

If after several collection attempts, Quality Book Sales wrote off $2,850 of accounts that could not be collected. Quality Book Sales estimates that 0.5 percent of sales on account will be uncollectible.  

• Using the allowance method, the amount of uncollectible accounts expense for Year 2 will be $2,750

• Net realizable value of receivables at the end of Year 2 will be $65,040

1) Uncollectible account expense

Uncollectible account expense = $550,000×0.5%

Uncollectible account expense= $2,750

2) Net realizable value

First step is to calculate the ending account receivable

Ending account receivable = $78,500+$550,000-$556,000-$2,850

Ending account receivable=$69,650

Second step is to calculate the ending allowance for doubtful accounts

Ending allowance for doubtful accounts =$4,710+$2,750-$2,850

Ending allowance for doubtful accounts=$4,610

Now let determine the Net realizable value using this formula

Net realizable value=Ending account receivable-Ending allowance for doubtful accounts

Let plug in the formula

Net realizable value =$69,650 -$4,610

Net realizable value =$65,040

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