At the beginning of 2007, EZ Tech Company's accounts receivable balance was $140,000, and the 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 during the year were $670,000. The company wrote of uncollectible accounts during the year.
Required
1. Determine the effect on EZ's accounting equation relative to the sale, collections, and write-offs of accounts receivable during 1007.
2. Determine the effect on EZ's accounting equation of the estimate of bad debts, assuming (a) bad debt expense is 3% of credit sales and (b) amounts expected to be uncollectible are 6% of the year-end accounts receivable.
3. What is the net realizable value of accounts receivable on December 31, 2007, under each assumption in part (2)?
4. What effect does the recognition of bad debt expense have on the net realizable value? What effect does the write-off of accounts have on the net realizable value?