Question

Leach Inc. experienced the following events for the first two years of its operations:

2018:
Issued $10,000 of common stock for cash.
Provided $90,000 of services on account.
Provided $33,000 of services and received cash.
Collected $57,000 cash from accounts receivable.
Paid $22,000 of salaries expense for the year.
Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.

2019:
Wrote off an uncollectible account for $700.
Provided $110,000 of services on account.
Provided $25,000 of services and collected cash.
Collected $92,000 cash from accounts receivable.
Paid $30,000 of salaries expense for the year.
Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.

What is the net realizable value of the accounts receivable at December 31, 2018?

Answer 1

The net realizable value of accounts receivable for Leach Inc. at the end of 2018 is $31,350, calculated by subtracting the estimated uncollectible accounts ($1,650) from the ending accounts receivable balance ($33,000).

Step-by-step explanation:

To find the net realizable value of the accounts receivable at December 31, 2018, for Leach Inc., we need to calculate the ending accounts receivable balance and then adjust it for the estimated uncollectible accounts. Initially, Leach Inc. provided $90,000 of services on account and collected $57,000, leaving a balance of $33,000. They also provided an additional $33,000 of services and received cash. Therefore, the ending accounts receivable before adjustment is $33,000. Considering the 5% estimate for uncollectibles, the adjustment is 5% of $33,000, which equals $1,650. The net realizable value is the accounts receivable minus the allowance for doubtful accounts, hence $33,000 - $1,650 = $31,350.

f we assume the ending accounts receivable balance is $57,000 (the amount collected in cash from accounts receivable), then the estimated uncollectible accounts would be 5 percent of $57,000, which is $2,850. Therefore, the net realizable value of the accounts receivable at December 31, 2018, would be $57,000 - $2,850 = $54,150.