The miller company earned $99,000 of revenue on account during year 1. there was no beginning balance in the accounts receivable and allowance accounts. during year 1, miller collected $70,000 of cash from its receivables accounts. the company estimates that it will be unable to collect 3% of its sales on account.

Answer and Explanation:

The Miller Company estimates 3% of bad debts. Bad debts are amount that the company makes provision of the amounts they believe will not be able to collect.

Allowance for doubtful account will be $99,000 x 3% = $2970

If the company is unable to collect $2970 from the total of $99,000 then we would deduct that amount from net credit sales (99,000 - 2970) = $96,030.

Now, the company collects $70,000 therefore, (96,030 - 70,000) = $26,030

NRV of receivables= $26030

Explanation:

The question requires the net realizable value of receivables. But before we get into that lets first understand what receivables and net realizable value (NRV) are? Receivables refer to transactions of credit sales which are also known as debtors. Net realizable value of an asset is it's the cash amount an entity expects to receive after having met selling and completion costs. In the case of receivables the net realizable value would be receivables account minus any allowances for doubtful and/or bad-debts.

So Miller company earned $99000 of which $70000 was collected so the remaining receivables are $29000, for which net realizable value shall be calculated.

At the beginning of the year Miller estimated doubtful debts to be 3% of total sales which is calculated as follows:

Allowance for doubtful debt= $99000× 3%

Allowance for doubtful debt= $2970

Now we determine net realizable value of receivables as follows;

NRV of receivables= Remaining receivables - allowance for doubtful debt

NRV of receivables= $29000 - $2970

NRV of receivables= $26030