Question

At the close of its first year of operations, December 31, 2020, Ming Company had accounts receivable of $1,620,000, after deducting the related allowance for doubtful accounts. During 2020, the company had charges to bad debt expense of $270,000 and wrote off, as uncollectible, accounts receivable of $120,000. What should the company report on its balance sheet at December 31, 2020, as accounts receivable before the allowance for doubtful accounts?

a. $2,010,000
b. $1,770,000
c. $1,470,000
d. $1,320,000

Answer 1

Ming Company should report a gross accounts receivable of $2,010,000 on its balance sheet at December 31, 2020, calculated by adding the net accounts receivable, bad debt expense, and accounts receivable written off.

Step-by-step explanation:

To determine what Ming Company should report on its balance sheet at December 31, 2020, as accounts receivable before the allowance for doubtful accounts, we start with the accounts receivable after the allowance for doubtful accounts, which is $1,620,000. Since the company had charges to bad debt expense of $270,000, we must add this amount back to the net accounts receivable to understand the gross value of accounts receivable before any allowances. Additionally, because accounts receivable of $120,000 were written off as uncollectible, this amount also needs to be added back to the net accounts receivable. The calculation is as follows:

Accounts receivable before allowance = Net accounts receivable + Bad debt expense + Accounts receivable written off

= $1,620,000 + $270,000 + $120,000

= $2,010,000

Therefore, the gross accounts receivable that Ming Company should report on its balance sheet at December 31, 2020, is $2,010,000 (option a).