EXERCISE 9-1 Classifications of receivables Boeing is one of the world\'s major

Question

EXERCISE 9-1
Classifications of receivables

Boeing is one of the world's major aerospace firms, withoperations involving commercial aircraft, military aircraft,missiles, satellite systems, and information and battle managementsystems. As of December 31, 2005, Boeing had $2,620 million ofreceivables involving U.S. government contracts and $1,155 millionof receivables involving commercial aircraft customers, such asDelta Air Lines and United Airlines.

Should Boeing report these receivables separately in thefinancial statements, or combine them into one overall accountsreceivable amount? Explain.

Explanation / Answer

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There are somegeneral rules in classifying receivables are:

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Segregate the different types of receivables that acompany possesses if material.

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Determine that receivables classified in theCurrent asset section will be converted into cash within the year or theoperating cycle, whichever is longer.

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Disclose any receivables designated or pledged ascolletral.

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Disclose any loss contingencies that exist on thereceivables.

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Disclose all significant concentration of creditrisk arising from receivables.

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Appropriately offset the valuation accounts againstthe proper receivable accounts. So, Boeing report these receivablesunder the head of Accounts Receivables withtheir identity.

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