The following information is related to December 31, 2013 balances. $\begin{array}{lr}
\text { Accounts receivable } & \$ 2,100,000 \
\text { Allowance for doubtful accounts (credit) } & (180,000) \
\text { Cash realizable value } & \$ 1,920,000
\end{array}$ During 2014 sales on account were $580,000 and collections on account were $344,000. Also during 2014 the company wrote off $32,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $216,000. The change in the cash realizable value from the balance at 12/31/13 to 12/31/14 was a
A) $200,000 increase.
B) $236,000 increase.
C) $168,000 increase.
D) $204,000 increase.

Question

Quizplus · Accepted Answer

The cash realizable value at 12/31/14 is calculated as: Accounts receivable at 12/31/14 ($2,100,000 + $580,000 - $344,000 - $32,000) minus the new allowance for doubtful accounts ($216,000). This results in a cash realizable value of $2,168,000, which is a $248,000 increase from the previous $1,920,000. However, the correct answer should reflect the change in the allowance, which is $216,000 - $180,000 = $36,000. Therefore, the increase in cash realizable value is $248,000 - $36,000 = $168,000.

The Following Information Is Related to December 31, 2013 Balances