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?

Question

Jimena Vega

Business

22 February, 19:32

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?

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Answers (1)

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Abby Murray · Answer 1

The answer is given below;

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.