Gowns, Inc.uses the percentage of sales basis to estimate its bad debts.For the year ended December 31, 2011, Gowns' total sales are €900,000.Management of the company estimates that 1% of credit sales will become uncollectible.The existing balance in the Allowances for Doubtful Accounts is a credit balance of €1,050.The Accounts Receivable balance at December 31, 2011 is €79,200.The cash realizable value of Accounts Receivable reported on the statement of financial position at December 31, 2011 is

Question

Quizplus · Accepted Answer

First, we need to calculate the estimated amount of bad debt based on the percentage of sales basis:
Estimated bad debt = 1% x €900,000 = €9,000
To update the Allowances for Doubtful Accounts, we need to increase the balance by the estimated bad debt:
New Allowances for Doubtful Accounts balance = €1,050 + €9,000 = €10,050 (debit balance)
The cash realizable value of Accounts Receivable is calculated as:
Cash realizable value = Accounts Receivable balance - Allowances for Doubtful Accounts balance
Cash realizable value = €79,200 - €10,050 = €69,150
Therefore, the correct answer is C.