Final answer:
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