Question

E7-8.  

(Recording Bad Debts)

(LO 3) At the end of 2017, Aramis Company has accounts receivable of $800,000 and an allowance for doubtful accounts of $40,000. On January 16, 2018, Aramis Company determined that its receivable from Ramirez Company of $6,000 will not be collected, and management authorized its write-off.

Instructions

(a)  

Prepare the journal entry for Aramis Company to write off the Ramirez receivable.

(b)  

What is the net realizable value of Aramis Company's accounts receivable before the write-off of the Ramirez receivable?

(c)  

What is the net realizable value of Aramis Company's accounts receivable after the write-off of the Ramirez receivable?

Answer 1

a)

Account Title & Explanation	Debit ($)	Credit ($)
Allowance for Doubtful Accounts	6,000
Accounts Receivable		6,000
(To Write off Accounts Receivable)

b) Net realizable value of Aramis Company's accounts receivable before the write-off of the Ramirez receivable = Balance at the end of 2017 - Allowance for Doubtful Accounts

= $800,000 - $40,000

= $760,000

c) Net realizable value of Aramis Company's accounts receivable after the write-off of the Ramirez receivable = Balance at the end of 2017 after write off - Allowance for Doubtful Account after write off

= (800,000-6,000) - (40,000-6,000)

= $760,000