Question

At the end of 2016, Splish Brothers Inc. has accounts receivable of $675,100 and an allowance for doubtful accounts of $24,370. On January 24, 2017, it is learned that the company’s receivable from Madonna Inc. is not collectible and therefore management authorizes a write-off of $4,127. (a) Prepare the journal entry to record the write-off. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)(b) What is the cash realizable value of the accounts receivable before the write-off and after the write-off?

Answer 1

Answer:

a.

Allowance for doubtful accounts $4,127

Accounts receivable $4,127

b.

The cash realizable value of the accounts receivable before the write-off : $650,730 and after the write-off: $650,730

This is the same amount

Explanation:

a. When write-off the receivable, the amount of the Accounts receivable of Splish Brothers Inc. will reduce. The company use Allowance for doubtful accounts to write-off  receiable that is not collectible.

b.

Cash realizable value is the amount of money company expect to receive from the accounts receivable after deducting the uncollectable amount.

Cash realizable value = Accounts receivable - Allowance for doubtful accounts

Before write-off:

Cash realizable value  = $675,100-$24,370 = $650,730

After write-off:

Accounts receivable = $675,100-$4,127 = $670,973

Allowance for doubtful accounts = $24,370-$4,127 = $20,243

Cash realizable value = $670,973 - $20,243 = $650,730

When the company write-off, the Accounts receivable and Allowance for doubtful accounts reduce the same amount. So, the Cash realizable value is not changed after write-off (this is the same amount before and after write-off)