Multiple Choice Question 134 The following information is related to December 31

Question

Multiple Choice Question 134 The following information is related to December 31, 2016 balances . Accounts receivable . Allowance for doubtful accounts (credit) . Cash realizable value $3490000 (254000) $2810000 During 2017 sales on account were $885000 and collections on account were $500000. Also during 2017 the company wrote off $49000 in uncollectible accounts. An analysis of outstanding receival ccounts at year end indicated that bad debts should be estimated at $323000. The change in the cash realizable value from the balance at 12/31/16 to 12/31/17 was a $693000 increase. $74200o in O of 1 used SAVE FOR LATER

Explanation / Answer

Question 134 Let us calculate closing balance of cash realizable value as on Dec 31 2017 and then find out the change in cash realisable value.

Hence change in Cash Realizable Value = $3,503,000 - $2,810,000 = $693,000 increase.

Question 108: Since management estimates 4% of accounts receivable will be uncollectible, hence the balance of Allowance for Doubtful Debts at the end of year should be equal to 4% of balance of accounts receivables which is calculated as follows:

$150,000 *4% = $6,000

Since there is already a credit balance of $1,500 in Allowance for Doubtful Debts, hence only balance amount of $4,500($6,000 - $1,500) will provided through the follwong journal entry:

Bad Debt Expense $4,500 Dr

Allowance for Doubtful Debts $4,500 Cr

Calculation of Accounts Receivable as on Dec 31, 2017 Particulars Amount ($) Opening Balance as on Dec 31, 2016        3,490,000 Add: Sales on Account 885,000 Less: Collections on Account          -500,000 Less: Write off of uncollectible accounts -49,000 Closing Balance as on Dec 31, 2017 3,826,000

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