Assume a company has the following account balances: Accounts Receivable: \$25,000; Notes Receivable (due in 9 months): \$10,000; Allowance for Doubtful Accounts: \$2,000 (credit); Interest Receivable: \$1,500; Inventory: \$15,000; Equipment: \$50,000. What is the total amount of current assets related to receivables, assuming the accounts above reflect normal activity?

• A. \$48,500
• B. \$36,500
• C. \$34,500
• D. \$25,000

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of current assets. Current assets are assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer. Examples include accounts receivable, notes receivable (if due within one year), interest receivable, and inventory.
2. Step 2: Identify the receivables that qualify as current assets. From the given data, Accounts Receivable (\$25,000), Notes Receivable (due in 9 months, \$10,000), and Interest Receivable (\$1,500) are considered current assets because they are expected to be collected within one year.
3. Step 3: Adjust for the Allowance for Doubtful Accounts. The Allowance for Doubtful Accounts (\$2,000 credit) is a contra-asset account that reduces the value of Accounts Receivable. Subtract this amount from Accounts Receivable to determine the net realizable value of receivables.
4. Step 4: Calculate the total current assets related to receivables. Add the net Accounts Receivable (after adjusting for the allowance), Notes Receivable, and Interest Receivable together.
5. Step 5: Verify the calculation and ensure that only receivables classified as current assets are included. Exclude Inventory and Equipment, as they are not receivables, and ensure the calculation aligns with the concept of current assets.