Question

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

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, 2019?

Answer 1

The net realizable value of Leach Inc.'s accounts receivable at December 31, 2019, is calculated by taking the ending accounts receivable balance ($17,300), subtracting the uncollectible amount at 5% ($865), resulting in a net realizable value of $16,435.

Step-by-step explanation:

To calculate the net realizable value of accounts receivable at December 31, 2019, for Leach Inc., we need to adjust the accounts receivable balance by the amount of uncollectible accounts. First, let's calculate the ending balance of the accounts receivable after all transactions are accounted for:

• Services provided on account: $110,000
• Cash collected from accounts receivable: $92,000 (reduces accounts receivable)
• Write off an uncollectible account: $700 (reduces accounts receivable)

The ending accounts receivable before the adjustment for uncollectible accounts will be:

$110,000 - $92,000 - $700 = $17,300.

Leach Inc. estimates that 5 percent of the ending accounts receivable balance will be uncollectible. Therefore, the adjustment for the uncollectible accounts is:

5% of $17,300 = $865.

The net realizable value of the accounts receivable is thus calculated as follows:

$17,300 - $865 = $16,435.

Therefore, the net realizable value of the accounts receivable at December 31, 2019, is $16,435.