Lithotech, Inc. had net sales in 2018 of $800,000. At December 31, 2018, before adjusting entries, the balances in selected accounts were: accounts receivable $126,000 debit, and allowance for doubtful accounts $1,400 debit. Lithotech estimates that 1% of its receivables will prove to be uncollectible. What is the net realizable value of the receivables reported on the statement of financial position at December 31, 2018 after adjusting entries?
A) $124,740
B) $126,140
C) $123,340
D) $126,000

Question

Quizplus · Accepted Answer

The allowance for doubtful accounts should be adjusted to 1% of accounts receivable, which is $1,260 (1% of $126,000). The current balance is a $1,400 debit, so an adjustment of $2,660 credit is needed. The net realizable value is $126,000 - $2,660 = $123,340.