Question

Lerner Company uses the net credit sales method to estimate bad debt expense and has estimated that 4% of its credit sales will be uncollectible. During 2018, Lerner reported net credit sales of $475,000 and collected a total of $540,000 cash from its credit customers. Also during 2018, Lerner wrote off $20,000 of accounts receivable as being uncollectible and recorded recoveries of previously written off accounts receivable totaling $10,000 (note that the $10,000 recovery is not included in the $540,000 of cash collections given previously). At January 1, 2018, Lerner Company reported accounts receivable of $142,000 and an allowance for doubtful accounts with a $15,000 credit balance. Calculate the net realizable value of Lerner Company's accounts receivable at December 31, 2018.

Answer 1

Answer:

$33,000

Explanation:

Accounts receivable at December 31, 2018 (Gross):

= A/R at Jan. 1, 2018 + Credit sales - cash collection from credit sales - write off + Reinstatement - Additional cash collection

= $142,000 + $475,000 - $540,000 - $20,000 + $10,000 - $10,000

= $57,000

Allowance for doubtful accounts at December 31, 2018:

= Allowance for doubtful accounts at Jan 1, 2018 + Bad debt expense - write off + Reinstatement

= $15,000 + ($475,000 × 4%) - $20,000 + $10,000

= $15,000 + $19,000 - $20,000 + $10,000

= $24,000

Therefore,

Net realizable value of Lerner Company's accounts receivable at December 31, 2018:

= Accounts receivable at December 31, 2018 (Gross) - Allowance for doubtful accounts at December 31, 2018

= $57,000 - $24,000

= $33,000