Question

Wilson Corporation uses an income statement approach to estimate credit losses. It’s gross Accounts Receivable of...

Wilson Corporation uses an income statement approach to estimate credit losses. It’s gross Accounts Receivable of &5,000,000 at the beginning of the period had a net realizable value of $4925000.During the period the company wrote off actual accounts receivable of $100000 and collected $7835000 from customers. Credit sale for the year amounted to $9000000. Of its credit sales, 1 per cent was estimated to eventually be in collectible.
Determine the net realiZable value of the company’s accounts receivable at the end of the period.
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Answer #1

ans:6,000,000$

NRV = Gross AR - Allowance for doubtful accounts (ADA)
You need to work on the AR and the ADA separately.

Gross AR
Beginning balance $5,000,000

+ Credit sales $9,000,000

- Collections from customers ($7,835,000)

- Amount written off ($100,000)
= Ending balance $6,065,000

calculation of ADA
Beginning balance $75,000 (5,000,000-4,925,000)
+ 1% deemed uncollectible $90,000 (9,000,000*1%)
- Written off ($100,000)
= Ending balance $65,000

So ending net realizable value = ending AR - ending ADA
= $6,065,000 - $65,000 = $6,000,000

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