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ID: 2433401 • Letter: X
Question
x.Hmle="text-align: left; margin-top: 0.5em; width: 100%; margin-bottom: 0.5em"> At January 1, 2004, XYZ Company reported an allowance for bad debts with a $25,000 credit balance. During2004, XYZ Company wrote-off as uncollectible accounts receivable totaling $17,000. Based on an aging of its
accounts receivable at December 31, XYZ Company determined that its bad debt expense for 2004 was equal
to $48,000. If XYZ Company had total accounts receivable of $280,000 at December 31, 2004, then its net
realizable value at December 31, 2004 must be equal to: At January 1, 2004, XYZ Company reported an allowance for bad debts with a $25,000 credit balance. During
2004, XYZ Company wrote-off as uncollectible accounts receivable totaling $17,000. Based on an aging of its
accounts receivable at December 31, XYZ Company determined that its bad debt expense for 2004 was equal
to $48,000. If XYZ Company had total accounts receivable of $280,000 at December 31, 2004, then its net
realizable value at December 31, 2004 must be equal to:
Explanation / Answer
Bad debt of XYZ company at January 1,2004 $25,000
Uncollectible accountsreceivable $17,000
Bad debtexpenses $48,000
Total accounts receivable at December 31,2004 $280,000
Net Realizable Value = [Receivables – Allowance fordoubtful accounts]
Net Realizable Value = [$280,000 - $48,000]
Net Realizable Value = $232,000
Calculating Operating Cycle
Operating cycle = inventory period +Accounts receivableperiod
Inventory turnover ratio=cost of goods sold/ averageinventory
Average Inventory = [($57,000 + $71,000) / 2]
Average Inventory = $64,000
Inventory turnover ratio = [ $467,200 / $64,000
Inventory Turnover ratio = 7.3 times
Receivable turnover ratio = credit sales / average a/c’sreceivable
Average Accounts receivable = [($42,000 + $34,000) / 2]
Average Accounts receivable = $38,000
Receivable turnover ratio = [$693,500 / $38,000]
Receivable turnover ratio = 18.25times
Inventory period= [365 / 7.3]
Inventory period = 50 days
Receivables period = [365 / 18.25]
Receivables period = 20 days
Operating cycle = Inventory period + A/c’s receivableperiod
Operating cycle = 50 + 20
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