Question

On December 31, 2020, Hoosier Inc. establishes an allowance for doubtful accounts of 3% of its accounts receivable balance of $180,000. Hoosier Inc. decides on March 15, 2021, not to pursue collection of Smith’s $1,000 account. The likelihood of collection does not support further collection efforts. What is the net realizable value (NRV) of accounts receivable before and after the write-off of the Smith account?

Answer 1

The answer is given below;

Step-by-step explanation:

Accounts Receivable-before write off $180,000*(1-3%)=$174,600

Accounts Receivable-after write off $179,000*(1-3%)=$173,630

Accounts receivable after write off does not include smith receivable as it has been specifically provided before providing allowance for doubtful accounts.This is the major difference between both workings.