Question

Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $88,000 of revenue on account during Year 1. During Year 1, Hancock collected $69,600 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:

Answer 1

1% x $88,000 = $880

That's the noncollectable estimate

$88,000 - $880 = $87,120

That's the approximate amount to be collected.

Since $69,600 has already been collected, that leaves $17,520

[ $87,120 -$69,600= $17,520 ]

This is realized but not taken into account.

The amount of net realizable value of receivables on the December 31, Year 1 balance sheet would be: $17,520