Question

Assume that Joey's Bike Shop uses the direct write-off method of accounting for uncollectible accounts. Answer the following questions:

(1) What is the accounts receivable balance at December 31, Year 1?

(2) What is the amount of uncollectible accounts expense for Year 1?

(3) What is the net realizable value of accounts receivable at December 31, Year 1?

Answer 1

In the direct write-off method, the accounts receivable balance, uncollectible accounts expense, and net realizable value are determined by the specific accounts that become uncollectible and are written off as losses.

Step-by-step explanation:

In the direct write-off method of accounting for uncollectible accounts, Joey's Bike Shop does not estimate or anticipate uncollectible accounts. Instead, they wait until a specific account becomes uncollectible and then write it off as a loss. Here are the answers to the questions:

1. The accounts receivable balance at December 31, Year 1, would include all the outstanding customer invoices that have not yet been collected. This balance can be obtained by summing up the total amount of outstanding invoices.
2. The amount of uncollectible accounts expense for Year 1 would be the total amount of specific accounts that Joey's Bike Shop determined to be uncollectible and wrote off as a loss during that year.
3. The net realizable value of accounts receivable at December 31, Year 1 is the total amount of accounts receivable minus the estimated amount of uncollectible accounts. Since the direct write-off method does not involve estimation, the net realizable value would be the same as the accounts receivable balance at that date.