Q1) At the starting of 2007, EZ Tech Company's accounts receivable balance was $140,000, and balance in Allowance for Doubtful Accounts was $2,350. EZ Tech's sales in 2007 were $1,050,000, 80% of which were on credit. Collections on account in year were $670,000. Company wrote of uncollectible accounts in the year.
1. Find out the effect on EZ's accounting equation relative to sale, collections, and prepare-offs of accounts receivable during 1007.
2. Find out effect on EZ's accounting equation of estimate of bad debts, suppose (a) bad debt expense is 3% of credit sales and (b) amounts expected to be uncollectible are 6% of year-end accounts receivable.
3. Compute net realizable value of accounts receivable on December 31, 2007, under each supposition in part (2)?
4. What effect does recognition of bad debt expense have on net realizable value? What effect does the prepare-off of accounts have on net realizable value?