Question

Accounts receivable $1,050,000

Allowance (90,000)
Cash realizable value $960,000

During 2007 sales on account were $290,000 and collections on account were $172,000. Also during 2007 the company wrote off $16,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $108,000.
The change in the cash realizable value from the balance at 12/31/06 to 12/31/07 was a
a. $100,000 increase
b. $118,000 increase
c. $ 84,000 increase
d. $102,000 increase

Answer 1

c. $ 84,000 increase

Step-by-step explanation:

The entry when the company wrote off uncollectible accounts:

Debit Allowance for Doubtful Accounts $16,000

Credit Uncollectible accounts $16,000

It makes Account receivable decrease: $16,000

In 2007, Sales on account that were not collected = $290,000 - $172,000 = $118,000

It makes Account receivable at the end of the year increase: $118,000

At 12/31/07,

1. Accounts receivable was: $1,050,000+$118,000-$16,000=$1,152,000

2. Cash realizable value = Accounts receivable - Allowance for Doubtful Accounts = $1,152,000 - $108,000 = $1,044,000

From 12/31/06 to 12/31/07, cash realizable value from the balance increase:

$1,044,000 - $960,000 = $84,000