Assignment Problem: Richards Company uses the allowance method of accounting for bad debts. The following summary schedule was prepared from an aging of accounts receivable outstanding on December 31 of the current year.
|
No. of Days Outstanding
|
Amount
|
Probability of Collection
|
|
0-30 days
|
$500,000
|
0.98
|
|
31-60 days
|
200,000
|
0.9
|
|
Over 60 days
|
100,000
|
0.8
|
The following additional information is available for the current year:
Net credit sales for the year $4,000,000
Allowance for Doubtful Accounts:
Balance, January 1 45,000
Balance before adjustment, December 31 2,000
Required: If Richards determines bad debt expense using 1.5 percent of net credit sales, compute the net realizable value of accounts receivable on the December 31 balance sheet.
a. $738,000.
b. $740,000.
c. $742,000.
d. $750,000.
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