Brief exercise 7.7 accounting for uncollectible accounts: an income statement approach wilson corporation uses an income statement approach to estimate credit losses. its gross accounts receivable of $5,000,000 at the beginning of the period had a net realizable value of $4,925,000. during the period, the company wrote off actual accounts receivable of $100,000 and collected $7,835,000 from credit customers. credit sales for the year amounted to $9,000,000. of its credit sales, 1 percent was estimated to eventually be uncollectible. determine the net realizable value of the company’s accounts receivable at the end of the period.

The net realizable value of the company’s accounts receivable at the end of the period is $6,000,000

Explanation:

For computing the net realizable value, first we have to compute the ending balance of the accounts receivable which is shown below:

Ending balance = Beginning balance + credit sales - collections  - written off accounts receivable

= $5,000,000 + $9,000,000 - $7,835,000 - $100,000

= $6,065,000

Now the ending balance of allowance for doubtful debts would be equal to

= Beginning balance + estimated amount - written off amount

= $75,000 + $90,000 - $100,000

= $65,000

The beginning balance of  allowance for doubtful debts  = Beginning balance of accounts receivable - net realizable value

= $5,000,000 - $4,925,000

= $75,000

And, the estimated amount would be

= Credit sales × estimated percentage

= $9,000,000 × 1%

= $90,000

Now the net realizable value equals to

= Ending balance of accounts receivable - ending balance of  allowance for doubtful debts

= $6,065,000 - $65,000

= $6,000,000