Question

18.On January 1, 2016, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2016. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance.

Required:
Part 1) The amount of bad debts expense recognized in the 2016 income statement will be __________.
Part 2) The net realizable value of receivables appearing on the 2016 balance sheet will amount to ___________.

Answer 1

Part 1) The amount of bad debts expense recognized in the 2016 income statement will be $400.

Part 2) The net realizable value of receivables appearing on the 2016 balance sheet will amount to $ 14,155

Step-by-step explanation:

Bad Debts are closed off to Trade Receivables accounts and they are an expense in the Income Statement

To find the Accounts Receivable Balance at year end, we open a Total Accounts Receivable - T Account and Balance it off.

Note :Allowances for Doubtful Debts are not recorded in this Account

Debits :

January 1, 2016 Accounts Receivable $20,000

Credit sales $70,000

Totals $90,000

Credits:

Bad Debts Written Off $400

Cash collections $74,700

December 31, Accounts Receivable (Balancing Figure) $14,900

Totals $90,000

Allowances for Doubtful debts are at 5% of the year-end accounts receivable balance, therefore amount to reduce the Accounts Receivables is $14,900 × 5% = $745

Net realizable value of receivables :

=$14,900 - $745

=$ 14,155