Question

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.

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