Question

Dearborn owns a department store that has a $45,700 balance in Accounts Receivable and a $3,000 credit balance in Allowance for Doubtful Accounts. 1. Determine the net realizable value of the accounts receivable. 2. Assume that an account receivable in the amount of $420 was written off using the allowance method. Determine the net realizable value of the accounts receivable after the write-off.

Answer 1

Answer:

1. realizable value = accounts receivable - allowance for doubtful accounts = $45,700 - $3,000 = $42,700

2. the journal entry used to write off the account is:

Dr Allowance for doubtful accounts 420

    Cr Accounts receivable 420

Since both accounts receivable and the allowance account are decreased in the same amount, the net realizable value doesn't change (still is $42,700).