Question

USS Navy, Inc. uses the allowance method to account for bad debts.  USS Navy had the following information after all entries except bad debt expense for the year.

Debit balance in Accounts Receivable, $6,500

Credit Sales of $24,000

Credit balance in Allowance for Doubtful Accounts, $12

Navy estimates 6% of outstanding receivables will be uncollectible.

1)How much should be recorded as bad debt expense?

2) What is the net realizable value of accounts receivable?

Answer 1

1.

Allowance for doubtful accounts, beginning = $12

Estimated uncollectibles percentage = 6% of accounts receivable

Bad debt expense = ( Accounts receivable x Estimated uncollectibles percentage) - Allowance for doubtful accounts, beginning

= (6,500 x 6%)-12

= 390-12

= $378

2.

Allowance for doubtful accounts, ending = Accounts receivable x Estimated uncollectibles percentage

= 6,500 x 6%

= $390

Net realizable value of accounts receivable = Accounts receivable - Allowance for doubtful accounts, ending

= 6,500-390

= $6,110

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