Question

Jake Company records bad debt expense using the net credit sales method and has estimated that 5.5% of its credit sales will prove to be uncollectible. During 2019, Jake Company reported net credit sales of $120,000 and collected $150,000 cash from its credit customers. The $150,000 includes a $6,000 recovery of an account receivable written off in the previous year. During 2019, Jake Company wrote-off as uncollectible accounts receivable of $4,000. Jake Company reported accounts receivable at January 1, 2019 of $88,000 and the allowance for doubtful accounts had an $8,000 credit balance at January 1, 2019. Calculate the net realizable value of Jake Company's accounts receivable at December 31, 2019.

Please include your calculations and explanation.

Answer 1

Net realizable value of Jake Company's accounts receivable at December 31, 2019 = $53400

Explanation;

First of all let’s calculate gross value of accounts receivable at December 31, 2019;

Accounts receivable at January 1, 2019	$88000
Add: Net credit sales during the year	$120000
Total balance	$208000
Less: Amount collected during the year ($150000 – $6000)	($144000)
Gross value of Accounts receivable at December 31, 2019	$64000

Now let’s calculate balance of allowance for doubtful accounts at December 31, 2019;

Allowance for doubtful accounts at Januray 1, 2019	$8000
Add: uncollectible during year ($120000 * 5.5 / 100)	$6600
Total balance	$14600
Less: Written off during the year	($4000)
Allowance for doubtful accounts at December 31, 2019	$10600

Thus, Net realizable value of Jake Company's accounts receivable at December 31, 2019 ($64000 – $10600) = $53400