On December 31, Year 1, the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. Loudoun uses the allowance method. On February 15, Year 2, one of Loudoun's customers failed to pay his $1,050 account and the account was written off. On April 4, Year 2, this customer paid Loudoun the $1,050. Which of the following correctly states the effect of recording the collection of the reestablished receivable on April 4, Year 2?

Question

Quizplus · Accepted Answer

Option D correctly states the effect of recording the collection of the reestablished receivable on April 4, Year 2. When the previously written-off account is paid, it increases both the accounts receivable and the allowance for doubtful accounts by the same amount, $1,050, since Loudoun had previously recognized an estimated 3% of credit sales as uncollectible. The net effect is no change in the net realizable value of accounts receivable.

On December 31, Year 1, the Loudoun Corporation Estimated That