Josh & Jake decide to organize a partnership, J&J Landscaping. Josh contributes cash of $4,000, equipment with a cost of $10,000 and $3,000 of accumulated depreciation, and accounts receivable of $2,500. Josh & Jake agree that the equipment has a fair value of $6,000 and the accounts receivable have a net realizable value of $1,000. What is the amount recorded to accounts receivable and the allowance to doubtful accounts?
The amount recorded to accounts receivable is $1,000 because it has a net realizable value of $1,000.
To calculate the allowance for doubtful accounts, we need to determine the difference between the accounts receivable's carrying value and its net realizable value. The carrying value is $2,500.
The difference between the carrying value and the net realizable value is $1,500 ($2,500 - $1,000).
Therefore, the allowance for doubtful accounts is $1,500.
To determine the amount recorded to accounts receivable and the allowance for doubtful accounts, we need to calculate the net realizable value (NRV) of the accounts receivable.
First, let's calculate the NRV of the accounts receivable:
Accounts receivable = $2,500
NRV of accounts receivable = $2,500 - Allowance for doubtful accounts
Next, let's calculate the fair value of the accounts receivable:
Fair value of accounts receivable = $1,000
Since the fair value of accounts receivable is given, we can set it equal to the NRV of accounts receivable and solve for the allowance for doubtful accounts:
$1,000 = $2,500 - Allowance for doubtful accounts
Subtracting $2,500 from both sides:
-$1,500 = -Allowance for doubtful accounts
To get the positive amount for the allowance for doubtful accounts, we can multiply both sides by -1:
$1,500 = Allowance for doubtful accounts
Therefore, the amount recorded to accounts receivable is $2,500, and the allowance for doubtful accounts is $1,500.
To calculate the amount recorded to accounts receivable and the allowance to doubtful accounts, we need to first determine the net realizable value of the accounts receivable. Net realizable value is the amount that is expected to be collected from the accounts receivable after considering any potential bad debts.
Given that the accounts receivable have a net realizable value of $1,000, we can conclude that the allowance for doubtful accounts should be $2,500 - $1,000 = $1,500. This means that there is an expected $1,500 that will not be collected from the accounts receivable.
To calculate the amount recorded to accounts receivable, we need to subtract the allowance for doubtful accounts from the original value of the accounts receivable. In this case, the original value of the accounts receivable is $2,500. Therefore, the amount recorded to accounts receivable will be $2,500 - $1,500 = $1,000.