Question

The following information relates to the beginning of the year: Accounts receivable, 370,000 Allowance for doubtful accounts (credit balance),18,500 During the current year, sales on account were 1,200,000 and collections on account were1,250,000. Also during the current year, the company wrote off 17,000 in uncollectible accounts. At year-end, an analysis of outstanding accounts receivable indicated that the allowance for doubtful accounts should have a16,000 credit balance so the company records the appropriate year-end adjusting entry. How much did the cash realizable value change during the current year?

Answer 1

The cash realizable value changed by $2,500 during the current year.

Step-by-step explanation:

The cash realizable value represents the amount of accounts receivable that the company expects to collect from its customers. The formula to calculate the cash realizable value is the accounts receivable balance minus the allowance for doubtful accounts balance.

In the given information, the accounts receivable balance at the beginning of the year is $370,000, and the allowance for doubtful accounts has a credit balance of $18,500. Therefore, the cash realizable value at the beginning of the year is $370,000 - $18,500 = $351,500.

During the current year, sales on account were $1,200,000, and collections on account were $1,250,000. This means that the company collected more than it sold on account, resulting in an increase in the cash realizable value. Additionally, $17,000 in uncollectible accounts was written off, reducing the cash realizable value.

To calculate the cash realizable value at the end of the year, we need to consider the adjustments. The desired allowance for doubtful accounts balance is $16,000, which means an adjustment of $2,500 ($18,500 - $16,000). Therefore, the cash realizable value at the end of the year is $351,500 + $2,500 = $354,000.

The change in cash realizable value during the current year is $354,000 - $351,500 = $2,500.