Question

Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $86,000 of revenue on account during Year 1. During Year 1, Hancock collected $68,200 of cash from its receivables accounts. The company estimates that it will be unable to collect 1% of revenue on account. The amount of net realizable value of receivables on the December 31, Year 1 balance sheet would be:a. $17, 118. b. $16, 940. c. $17, 800. d. $17, 622.

Answer 1

b. $16, 940

Step-by-step explanation:

The allowance for bad debt is an account used to estimate how much of the receivables recorded by an entity may become uncollectible.

However, once debts are determined to have gone bad and have not been provided for previously, the entries to be posted will be between the bad debt and account receivables.

Given that Revenue earned was $86,000 on account and cash collected was $68,200

Then account receivables balance

= $86,000 - $68,200

= $17,800

If the company estimates that it will be unable to collect 1% of revenue on account, this amounts to

= 1% of $86,000 = $860

The amount of net realizable value of receivables on the December 31, Year 1 balance sheet would be

= $17,800 - $860

= $16,940

Answer 2

b. $ 16,940

Step-by-step explanation:

First we need to determine the allowance for uncollectible accounts to be made for the year.

Allowance for uncollectible revenue is 1 % of revenue on account.

Revenue on account is $ 86,000 so the allowance for uncollectible accounts is $ 86,000 * 1 %= $ 860

The gross receivable value is amount of revenue on credit less the collections

Revenue on credit $ 86,000

Less: collections on account $ 68,200

Gross receivables $ 17,800

Less Allowance for uncollectible accounts $( 860)

Net Realizable value of receivables $ 16,940