Wilson Corporation uses an income statement approach to estimate credit losses.

Question

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. (Omit the "$" sign in your response.)

What is the answer and how did you come up with it?
Thank you in advance

Explanation / Answer

NRV = Gross AR - Allowance for doubtful accounts (ADA) You need to work on the AR and the ADA separately. Gross AR Beginning balance $5,000,000 + Credit sales $9,000,000 - Collections from customers ($7,835,000) - Amount written off ($100,000) = Ending balance $6,065,000 ADA Beginning balance $75,000 + 1% deemed uncollectible $90,000 - Written off ($100,000) = Ending balance $65,000 So ending net realizable value = ending AR - ending ADA = $6,065,000 - $65,000 = $6,000,000 Answer: 6,000,000.

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