Allen Enterprises receives a $4,500, 5%, six-month note receivable from Wells Manufacturing. Allen also receives a $6,000, 4%, six-month note receivable from Felde Incorporated. What is the cash realizable value if Allen estimates bad debts as 2% of total notes receivable?

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24-03-2022
Business

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Allen Enterprises receives a $4,500, 5%, six-month note receivable from Wells Manufacturing. Allen also receives a $6,000, 4%, six-month note receivable from Felde Incorporated. What is the cash realizable value if Allen estimates bad debts as 2% of total notes receivable?

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anthougo anthougo · Answer 1 · 2022-04-05T09:52:56+02:00

The cash realizable value from the two notes receivable if Allen Enterprises estimates bad debts as 2% of total notes receivable is $10,732.50

What are notes receivables?

Notes receivables are treated as assets because they give the holder a right to receive some future value based on the givers' promises.

They usually attract some interests.

Data and Calculations:

Notes Receivable Interest Total amount

A $4,500 $112.50 ($4,500 x 5% x 1/2) $4,612.50

B $6,000 $120 ($6,000 x 4% x 1/2) $6,120.00

Interest rate for Note A = 5%

Interest ratae for Note B = 4%

Maturity period for Notes A and B = 6 months

Estimated bad notes = $210 (10,500 x 2%)

Thus, the cash realizable value from the two notes receivable if Allen Enterprises estimates bad debts as 2% of total notes receivable is $10,732.50 ($4,612.50 + $6,120).

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