Question

On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $68,200 and $2,300, respectively. During the year Kincaid reported $176,000 of credit sales. Kincaid wrote off $1,550 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $203,300. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to:

a. 36,840
b 40900
c. 37590
d. 39350

Answer 1

Option (a) is correct.

Step-by-step explanation:

Accounts Receivable:

= Beginning Accounts Receivable + Credit sales - Receivables as uncollectible - Cash collections of receivables

= $68,200 + $176,000 - $1,550 - $203,300

= $39,350

Allowance for Doubtful Accounts:

= Beginning Allowance for Doubtful Accounts - Receivables as uncollectible + 1% of credit sales are uncollectible

= $2,300 - $1,550 + (0.01 × $176,000)

= $2,300 - $1,550 + $1,760

= $2,510

Net realizable value of receivables that Kincaid would report:

= Accounts Receivable - Allowance for Doubtful Accounts

= $39,350 - $2,510

= $36,840