Question

An analysis and aging of the accounts receivable of Hugh Company at December 31 revealed the following data: Accounts Receivable $900,000 Allowance for Doubtful Accounts per books before adjustment (Cr.) 50,000 Amounts expected to become uncollectible 56,000 The cash realizable value of the accounts receivable at December 31, after adjustment, is:

Answer 1

The cash realizable value of the accounts receivable at December 31, after adjustment, is $844,000.

Step-by-step explanation:

Cash realizable value of the accounts receivable is the amount of accounts receivable that is deemed collectible after considering allowance for doubtful accounts.

The allowance for doubtful accounts was initially $50,000 credit (opening), meanwhile the amount that is expected to become uncollectible is $56,000. Bad debt expense will be $6,000 ($56,000 - $50,000). Therefore, the adjustment to allowance for doubtful accounts will be:

Debit Bad debt expense $6,000

Credit allowance for doubtful accounts $6,000

(Additional bad debt expense required)

Consequently, the cash realizable value of the accounts receivable at December 31 is $900,000 - $56,000 = $844,000.