Jake Company records bad debt expense using the net credit sales method and has estimated that 5.5% of its credit sales will prove to be uncollectible. During 2019, Jake Company reported net credit sales of $120,000 and collected $150,000 cash from its credit customers. The $150,000 includes a $6,000 recovery of an account receivable written off in the previous year. During 2019, Jake Company wrote-off as uncollectible accounts receivable of $4,000. Jake Company reported accounts receivable at January 1, 2019 of $88,000 and the allowance for doubtful accounts had an $8,000 credit balance at January 1, 2019. Calculate the net realizable value of Jake Company's accounts receivable at December 31, 2019.

net realizable value of Jack account receivables 42,600

Explanation:

we recognize bad debt as percent of credit sales:

120,000 x 5.5% = 6,600

account receivables balance:

88,000 + 120,000 credit sales - 150,000 collected + 6,000 recovery = 64,000

allowance:

8,800 + 6,000 recovery + 6,600 bad debt for the year = 21,400

net: 64,000 - 21,400 = 42,600

Net realizable value accounts receivables December 31 2019 - $ 43,400

Explanation:

Computation of Net realizable value of Accounts receivable balance

Accounts Receivable Movements

Opening balance: Accounts Receivable $ 88,000

Add: Credit sales $ 120,000

Add: Accounts receivable written off reinstated $ 6,000

Less: Cash collections $ (150,000)

Less; Receivables written off during the year $ (4,000)

Accounts receivable - December 31 2019 $ 60,000

Allowance for uncollectible accounts movements

opening balance $ 8,000

Add: Bad debts expense provided for the year

Credit sales * 5.5 % $ 120,000 $ 6,600

Add: Reinstatement of previous written off amount $ 6,000

Less: Receivable written off during $ (4,000)

Closing balance' $ 16,600

Net realizable value - Accounts Receivable $ 43,400