Question

accounts receivable of $200,000 and an allowance for uncollectible accounts of $8,500 just before writing off as worthless an accounts receivable from J Corp of $1,200. Compute the net realizable values of the accounts receivable that is reported on the balance sheet before the write-off and after the write-off.

Answer 1

Answer:

NRV before writing-off = $191500

NRV after writing off = $198800

Explanation:

Lets first understand what net realizable value is. Net realizable value is the remaining/realizable value of an asset after having subtracted selling or completion costs. In case of receivables, the net realizable value would be the residual value of receivables expected to be received after subtracting any allowances for doubtful debts or un-collectible accounts such as bad-debt (i.e receivables unable to be collected).

NRV before writing-off = $200000 - $8500

NRV before writing-off = $191500

Now lets calculate NRV after a receivable has been declared as uncollectible.

Since $8500 was just an allowance/estimate and now that actual amount of bad-debt has been discovered, we have to  inrease our receivables by the difference of the allowance and bad-debt and that would be the NRV after writing off. I.e $8500 - $1200 =$7300.

NRV after writing off = $191500+ $7300

NRV after writing off = $198800.

This is just like subtracting $1200 from $200000.