Accounts Receivable Analysis and Aging Data
What is the cash realizable value of the accounts receivable at December 31 after adjustment?
A. $844,000
B. $900,000
C. $50,000
D. $56,000
Answer:
$844,000
Given the data from an analysis and aging of the accounts receivable of Hugh Company at December 31, the cash realizable value of the accounts receivable after adjustment is $844,000. This value is calculated by subtracting the Allowance for Doubtful Accounts from the Accounts Receivable.
Accounts Receivable = $900,000
Allowance for Doubtful Accounts per books before adjustment = $50,000
Amounts expected to become uncollectible = $56,000
Bad debt expense is determined by subtracting the credit balance of the allowance for doubtful accounts from the expected amount of uncollectible.
Bad debt expense:
= Expected amount of uncollectible - Credit balance
= $56,000 - $50,000
= $6,000
After adjustment, the cash realizable value of the accounts receivable is calculated as follows:
= Accounts Receivable - Allowance for Doubtful Accounts
= $900,000 - $56,000
= $844,000