Question

Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $160,000 of revenue on account during Year 1. During Year 1, Hancock collected $128,000 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) $30,400.
B) $30,720.
C) $32,000.
D) $30,000.

Answer 1

The realizable value of accounts receivable is $30,400 that is option A.

Step-by-step explanation:

The net realizable value of the accounts receivable comprises of the initial revenue on accounts less the cash collected from accounts receivable less 1% allowance of uncollectible accounts as shown below:

Sales on accounts $160,000

cash collection from accounts receivable ($128,000)

less allowance for uncollectible accounts($160,000*1%) ($1,600)

Net realizable value of accounts receivable $30,400