In the first year of operation, Ralph's Repair Service recognized $480,000 of service revenue on account. The ending accounts receivable balance was $88,000. Ralph estimates that 2% of sales on account will not be collected. During Year 1, Ralph wrote off a $200 receivable that was determined to be uncollectible. Assume there were no other transactions affecting accounts receivable.Required:a) What amount of cash was collected in Year 1?b) What amount of uncollectible accounts expense was recognized in Year 1?c) What is the net realizable value of accounts receivable that will be reported on the balance sheet as of December 31, Year 1?

Question

What will be an ideal response?

Answer 1

a) $391,800 
b) $9,600 
c) $78,600 

a) Ending accounts receivable of $88,000 = Beginning accounts receivable of $0 + Revenue on account of $480,000 ? Collections on account (the unknown) ? Write-off of $200
Cash collections = $0 + $480,000 ? $200 ? $88,000 = $391,800
b) Uncollectible accounts expense = Revenue on account of $480,000 × 2% = $9,600 
c) Ending allowance for doubtful accounts = Beginning allowance for doubtful accounts of $0 + Uncollectible accounts expense of $9,600 ? Write-offs of $200 = $9,400
Net realizable value = Accounts receivable of $88,000 ? Allowance for doubtful accounts of $9,400 = $78,600