Calculating Allowance for Doubtful Accounts
Explanation:
Net Realizable Value Calculation:
The net realizable value of accounts receivable is calculated to determine the balance of Allowance for Doubtful Accounts after adjustment. The formula to find the net accounts receivables is:
Net Accounts Receivables = Closing Accounts Receivables before adjustment -/+ Increase or decrease in Allowance for Doubtful Debts
Step 1: Closing Accounts Receivables before adjustment
Closing Accounts Receivables before adjustment is $170,000.
Step 2: Increase or decrease in Allowance for Doubtful Debts
The opening Allowance for Accounts Receivables is $9,800. The change in the Allowance for Doubtful Debts is calculated as follows:
Allowance for the Year = Closing Allowance calculated - Opening Allowance Value
Allowance for the Year = 10% of $170,000 - $9,800
Allowance for the Year = $17,000 - $9,800 = $7,200
Step 3: Net Accounts Receivables
By using the values calculated above:
Net Accounts Receivables = $170,000 + $7,200 = $177,200
Therefore, the balance of Allowance for Doubtful Accounts after adjustment is $177,200.