Question

M Company has the following information available before recording the adjustment at the end of the year: Accounts Receivable $800,000 Allowance for doubtful accounts per books before adjustment $50,000 credit Bad Debt Expense calculated using percentage of receivables method $15,000 The cash (net) realizable value of the accounts receivable at the end of the year after adjustment is Select one: a. None of the above b. $735,000 c. $685,000 d. $750,000 e. $800,000

Answer 1

Answer:

b. $735,000

Explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Allowance for Doubtful Accounts balance before adjustment = $50,000 Credit

Bad Debt expense based on percentage of receivables = $15,000

This adjustment will added to the balance of $50,000 to make Allowance for Doubtful Accounts ending balance equals to $65,000 ( $50,000 + $15,000 ).

Net realizable value of account receivable is the net value of Allowance for Doubtful Accounts and Account receivable.

Net Realizable value of the accounts receivable = $800,000 - $65,000 = $735,000