Willis Company had $200,000 in credit sales for Year 1, and it estimated that 2% of the credit sales would not be collected. The balance in Accounts Receivable at the end of the year was $38,000. Willis had never used the allowance method to account for its receivables till Year 1. The net realizable value of its accounts receivable at the end of the year was $34,000.

Question

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$200,000 × 2% = $4,000 uncollectible accounts expense (increase to allowance for doubtful accounts); $38,000 accounts receivable - $4,000 allowance for doubtful accounts = $34,000 net realizable value

Willis Company Had $200,000 in Credit Sales for Year 1