Question

On December 31 of Swift Co.’s first year, $61,000 of accounts receivable is not yet collected. Swift estimates that $3,100 of its accounts receivable is uncollectible and records the year-end adjusting entry.

(1) Compute the realizable value of accounts receivable reported on Swift’s year-end balance sheet.
(2) On January 1 of Swift’s second year, it writes off a customer’s account for $500. Compute the realizable value of accounts receivable on January 1 after the write-off. Befor write off After write off
Realizaable value of account recivable _____________ _____________

Answer 1

The realizable value of accounts receivable reported on Swift's year-end balance sheet is $57,900. After the write-off on January 1, the realizable value is $57,400.

Step-by-step explanation:

(1) Realizable value of accounts receivable reported on Swift's year-end balance sheet:

The realizable value of accounts receivable is the amount that Swift expects to collect from its customers. In this case, the total accounts receivable is $61,000, and Swift estimates that $3,100 of it is uncollectible. Therefore, the realizable value would be $61,000 - $3,100 = $57,900.

(2) Realizable value of accounts receivable on January 1 after the write-off:

When Swift writes off a customer's account for $500, it means that they no longer expect to collect that amount. Therefore, the realizable value of accounts receivable would decrease by $500. Before the write-off, the realizable value would be $57,900. After the write-off, it would be $57,900 - $500 = $57,400.

Answer 2

The realizable value of accounts receivable on Swift Co.'s year-end balance sheet is $57,900 after subtracting the allowance for doubtful accounts. The write-off of a customer's account for $500 on the following year does not affect this value because the potential loss was already accounted for.

Step-by-step explanation:

The question relates to the calculation of the realizable value of accounts receivable before and after a specific write-off. On December 31 of Swift Co.’s first year, the company has $61,000 in accounts receivable. Swift Co. estimates that $3,100 is uncollectible and records it as an allowance for doubtful accounts which is a contra account to accounts receivable.

(1) To compute the realizable value of accounts receivable reported on Swift’s year-end balance sheet:
Accounts Receivable = $61,000
Less: Allowance for Doubtful Accounts = $3,100
Realizable Value of Accounts Receivable = Accounts Receivable – Allowance for Doubtful Accounts
Realizable Value of Accounts Receivable = $61,000 – $3,100
Realizable Value of Accounts Receivable = $57,900

(2) On January 1, when Swift Co. writes off $500 from its accounts receivable, this does not affect the realizable value as the allowance for doubtful accounts has already accounted for this potential loss. Consequently, the realizable value remains the same immediately before and after the write-off.

Before Write-Off:
Realizable Value of Accounts Receivable = $57,900
After Write-Off:
Realizable Value of Accounts Receivable = $57,900