CFA Practice Question

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CFA Practice Question

Presented below is information related to Omni Inc.:

allowance for doubtful accounts balance: $500
accounts receivable balance: $2000
write off $200 of a receivable that is already included in the allowance for doubtful accounts

How will the financial statements be affected by the write-off?
A. Allowance for doubtful accounts will remain the same.
B. The net realizable value will decrease to $1,300.
C. Allowance for doubtful accounts will decrease to $300.
Explanation: Omni Inc. would reduce both its allowance for doubtful accounts and accounts receivable by $200, leaving the same net realizable value.

User Contributed Comments 4

User Comment
azramirza why?
smmahmood account recievable balance is the gross outstanding. so the net a/c recv. balance is net of doubtfull balance. not if i write off it will go away both from a/c-recv. balance and from the doubtfull balance. net impact (2000-200)-(500-200)= 1500.
Skrills but it says 200 is already included in allowance for doubtful accounts? wouldnt that imply it has already been taken out and there is still 500 remaining?
endurance the 200 is already included in allowance account, but it hasen't been writen off yet. So when you actually take the loss and expense the write off, the allowance account for doubtfull account must decreas by (500-200)=300
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