On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $76,000 and $4,000, respectively. During the year Kincaid reported $215,000 of credit sales. Kincaid wrote off $2,100 of receivables as uncollectible in Year 2. Cash collections of receivables amounted to $271,100. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales. The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to:

The net realizable value of receivables appearing on Kincaid's Year 2 balance sheet will amount to $15,650.

Explanation: See below steps to record the transactions that occurred during the year and recognize ultimately assess the adequacy of the allowance for doubtful accounts.

Step 1: Recognize the transactions during the year

Debit Accounts receivables                      $215,000

Credit Sales revenue                                 $215,000

(To recognize the sales on account)

Debit Cash                                                  $271,100

Credit Accounts receivable                       $271,100

(To recognize sales collection)

Debit Allowance for doubtful account         $2,100

Credit Accounts receivable                          $2,100

(To recognize the write-off of accounts receivable)

Step 2: Movement schedules of accounts receivable and allowance for doubtful accounts

Accounts receivable

Balance, beginning of the year                   $76,000

Addition: Credit sales                                   215,000

Less: Collections                                           271,100

        Write-off                                                    2,100

Balance, end of the year                              $17,800

Allowance for doubtful accounts

Balance, beginning of the year                     $4,000

Less: Write-off                                                   2,100

Balance, end of the year (unadjusted)          $1,900

Step 3: Journals for bad debt expense

Debit Bad debt expense [(1% * $215,000) - $1,900]               $250

Credit Allowance for doubtful account                                   $250

(To record bad debt expense for the year)

Therefore, net realizable value of receivables is $17,800 - $2,150 = $15,650.

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