Warnock Company had $400,000 in credit sales for 2014, 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 $79,000. Warnock had never used the allowance method to account for its receivables till 2014. The net realizable value of its accounts receivable at the end of the year was $71,000.

Question

Quizplus · Accepted Answer

The net realizable value of accounts receivable is $71,000, which is less than the balance in Accounts Receivable of $79,000. This indicates that Warnock needs to establish an allowance for doubtful accounts to reduce the carrying value of its accounts receivable to its net realizable value.

Warnock Company Had $400,000 in Credit Sales for 2014, and It