Use the following information to answer multiple-choice questions 5 and 6. At the end of the year, before any adjustments are made, the accounting records for Sutton Company show a balance of $100,000 in accounts receivable. The allowance for uncollectible accounts has a remaining balance of $2,000. (This means last year’s estimate was too large by $2,000.) The company uses accounts receivable to estimate bad debts expense. An analysis of accounts receivable results in an estimate of $27,000 of uncollectible accounts.

5. The bad debts expense on the income statement for the year would be
a. $27,000.
b. $25,000.
c. $23,000.
d. $29,000.
6. Net realizable value of the receivables on the year-end balance sheet would be
a. $100,000.
b. $75,000.
c. $73,000.
d. $77,000.

To answer question 5, we need to determine the bad debts expense for the year. This is calculated as the difference between the estimate of uncollectible accounts and the remaining balance in the allowance for uncollectible accounts.

In this case, the estimate of uncollectible accounts is $27,000 and the remaining balance in the allowance for uncollectible accounts is $2,000. Therefore, the bad debts expense would be $27,000 - $2,000 = $25,000.

So, the correct answer for question 5 is b. $25,000.

To answer question 6, we need to calculate the net realizable value of the receivables on the year-end balance sheet. Net realizable value is the amount of accounts receivable that the company expects to collect after accounting for estimated uncollectible accounts.

The net realizable value is calculated by subtracting the estimated uncollectible accounts from the total accounts receivable balance. In this case, the total accounts receivable balance is $100,000 and the estimate of uncollectible accounts is $27,000.

Therefore, the net realizable value would be $100,000 - $27,000 = $73,000.

So, the correct answer for question 6 is c. $73,000.