Question

Before year-end adjusting entries, Dunn Company's account balances at December 31, 2014, for accounts receivable and the related allowance for uncollectible accounts were $1,200,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is:a. $1,165,000.b. $1,075,000.c. $985,000.d. $1,110,000.

Answer 1

Answer: $1,075,000

 

Explanation: When a current or fixed asset is held in inventory, the worth at which it is recorded in accounting is called its net realizable value. In the given case, the net realizable value could be computed using following formula  :-

Net realizable value = Balance of receivable on Dec 31 - expected                                                                                                                                                                                 uncollectibles          

Putting the values into equation we get :-

Net realizable value = $1,200,000 - $125,000

                                   = $1,075,000