Question

Problem 4:

Classic Auto Parts sells new and used auto parts. Although a majority of its sales is cash sales, it makes a significant amount of credit sales. During Year 1, its first year of operations, Classic Auto Parts experienced the following:

        Sales on account                        $320,000

        Cash sales                            $680,000

        Collections of accounts receivable                $295,000

        Uncollectible accounts written-off during the year        $1,400

1. Assume that Classic Auto Parts uses the direct write-off method of accounting for bad debt amounts. Answer the following questions:

   1. What is the Accounts Receivable balance at December 31, Year 1?

2. What is the amount of bad debt expense for Year 1?

3. What is the net realizable value of accounts receivable at December 31, Year 1?

Answer 1

A)	Accounts Receivable balance at December 31, Year 1
	Credit Sales	320,000
	Less: Collection	(295,000)
	Less: Written off	(1,400)
	Accounts Receivable balance at December 31, Year 1	23,600
b)	Amount of Bad debt Expense	1,400
c)	net realizable value of accounts receivable at December 31, Year 1	23,600
	Note: Under direct write off method, NRV and gross baalnce is same.