Question

Lynx Corp.

The data presented below for Lynx Corp. is for the year ended December 31, 2016:
Sales (100% on credit) $1,000,000
Sales returns $30,000
Accounts Receivable (December 31, 2016) $170,000
Allowance for Doubtful Accounts [Cr. Balance]
(Before adjustment at December 31, 2016) $1,300
Estimated amount of uncollectible accounts based on aging analysis $14,000

See the data for Lynx Corp.

If Lynx Corp.uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

a. $156,000
b. $167,000
c. $184,000
d. $140,000

Answer 1

The net realizable value of Lynx Corp.'s accounts receivable after adjusting for bad debt expense is $156,000, calculated by subtracting the adjusted Allowance for Doubtful Accounts from the Accounts Receivable (net of sales returns). The correct answer is option: a. $156,000

Step-by-step explanation:

The net realizable value of accounts receivable after the adjustment for bad debt expense for Lynx Corp. can be calculated by first adjusting the Allowance for Doubtful Accounts and then subtracting the adjusted allowance from the Accounts Receivable (before any sales returns are accounted for).

Since the estimated uncollectible accounts based on the aging analysis is $14,000, and there's already a credit balance of $1,300 in the Allowance for Doubtful Accounts, Lynx Corp. needs to adjust this allowance by the difference, which is $14,000 - $1,300 = $12,700.

Therefore, the adjusted Allowance for Doubtful Accounts would be $14,000. Next, to find the net realizable value of the accounts receivable, we deduct the sales returns from total sales, and then account for the adjusted allowance:

Sales (net of returns) = $1,000,000 - $30,000 = $970,000
Net realizable value = Accounts Receivable - Adjusted Allowance for Doubtful Accounts
Net realizable value = $170,000 - $14,000 = $156,000