AT&U Company Data for the year ended December 31,2012,are presented below:
$\begin{array}{lc}
\text {Sales (credit) } &\$ 2,500,000 \
\text {Sales retuns and allowances } &50,000 \
\text { Accounts Receivable (December 31, 2012) } & 640,000 \
\text { Allowance for Doubtful Accounts } &\
\text {(Before adjustment at December 31, 2012) } &20,000 \
\text { Estimated amount of uncollected accounts based on aging analysis } &45,000
\end{array}$
-Refer to AT&U Company.If the company uses the aging of accounts receivable approach to estimate its bad debts,what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

Question

AT&U Company Data for the year ended December 31,2012,are presented below:
$\begin{array}{lc}
 \text {Sales (credit) } &\$ 2,500,000 \
\text {Sales retuns and allowances } &50,000 \
 \text { Accounts Receivable (December 31, 2012) } & 640,000 \
 \text { Allowance for Doubtful Accounts } &\
 \text {(Before adjustment at December 31, 2012) } &20,000 \
 \text { Estimated amount of uncollected accounts based on aging analysis } &45,000
\end{array}$ 
-Refer to AT&U Company.If the company uses the aging of accounts receivable approach to estimate its bad debts,what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

Quizplus · Accepted Answer

To calculate the net realizable value of accounts receivable, we need to adjust the allowance for doubtful accounts to reflect the estimated amount of uncollectible accounts based on aging analysis.

First, we can calculate the current balance of the allowance for doubtful accounts:

Allowance for doubtful accounts before adjustment = $20,000

Bad debt expense = Estimated amount of uncollected accounts based on aging analysis - Allowance for doubtful accounts before adjustment
Bad debt expense = $45,000 - $20,000 = $25,000

Allowance for doubtful accounts after adjustment = Allowance for doubtful accounts before adjustment + Bad debt expense
Allowance for doubtful accounts after adjustment = $20,000 + $25,000 = $45,000

Next, we can calculate the net realizable value of accounts receivable:

Net realizable value of accounts receivable = Accounts receivable - Allowance for doubtful accounts after adjustment - Sales returns and allowances
Net realizable value of accounts receivable = $640,000 - $45,000 - $50,000 = $545,000

Therefore, the best choice is B) $595,000, as it is the closest option to the calculated net realizable value of $545,000.

AT&U Company Data for the Year Ended December 31,2012,are Presented