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10 July, 18:05

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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  1. 10 July, 18:33
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    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.
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