Willis Company had $200,000 in credit sales for Year 1, and it estimated that 2% of the credit sales would not be collected. The balance in Accounts Receivable at the end of the year was $38,000. Willis had never used the allowance method to account for its receivables until Year 1. The net realizable value of its accounts receivable at the end of the year was $34,000. True or false?

Question

Business

Lainey Phillips

10 February, 07:49

Willis Company had $200,000 in credit sales for Year 1, and it estimated that 2% of the credit sales would not be collected. The balance in Accounts Receivable at the end of the year was $38,000. Willis had never used the allowance method to account for its receivables until Year 1. The net realizable value of its accounts receivable at the end of the year was $34,000. True or false?

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Damien Campos · Answer 1

True

Explanation:

Given:

Total credit sales = $200,000

Estimated bad debts = 2%

Ending balance of account Receivables = $38,000

Note: it is given that Willis Company had never use allowance method for Account Receivables.

So, Willis Company uses "Write off" method.

Computation of write off amount from account receivable:

Bed debts = Total credit sales * Estimated bad debts

Bed debts = $200,000 * 2%

Bed debts = $4,000

Net realizable value of Accounts receivable = $38,000 - Bed debts

Net realizable value of Accounts receivable = $38,000 - $4,000

Net realizable value of Accounts receivable = $34,000

Therefore, net realizable value of Accounts receivable is '$34,000' is True.