Question

Malcom's financial statements revealed uncollectible accounts expense of $8,000, accounts receivable of $140,000, and allowance for uncollectible accounts of $12,000. The net realizable value of Malcom's accounts receivable is:

a.$128,000
b.$132,000
c.$136,000
d.$152,000

Answer 1

The net realizable value is found by subtracting the allowance for uncollectible accounts from the total accounts receivable. For Malcom, with $140,000 in receivables and a $12,000 allowance, the net realizable value is $128,000.

Step-by-step explanation:

The net realizable value (NRV) of Malcolm's accounts receivable is determined by subtracting the allowance for uncollectible accounts from the total amount of accounts receivable. In Malcolm's financial statements, accounts receivable are presented at $140,000, and the allowance for uncollectible accounts is recorded at $12,000. Therefore, the net realizable value is calculated as $140,000 - $12,000, resulting in $128,000.

In response to the student's question, the net realizable value of Malcolm's accounts receivable is $128,000, corresponding to option (a). This metric provides a more accurate representation of the expected cash inflows from accounts receivable, accounting for potential uncollectible amounts through the allowance. Understanding the net realizable value is crucial for assessing the true worth of accounts receivable and gauging the financial health of a business.