Interpreting Accounts Receivable and Its Footnote Disclosure Following is the cu
ID: 2541624 • Letter: I
Question
Interpreting Accounts Receivable and Its Footnote Disclosure
Following is the current asset section from the W.W. Grainger, Inc., balance sheet.
Grainger reports the following footnote relating to its receivables.
Allowance for Doubtful Accounts: The following table shows the activity in the allowance for doubtful accounts.
(a) What amount do customers owe Grainger at each of the year-ends 2008 through 2010?
(c) What percentage of its total accounts receivable does Grainger feel are uncollectible? Hint: Percentage of uncollectible accounts = Allowance for uncollectible accounts/Gross accounts receivable. Round your answers to two decimal places.
(d) What amount of bad debts expense did Grainger report in its income statement for each of the years 2008 through 2010?
The allowance for uncollectible accounts remained relatively the same as a percentage of gross accounts receivable.
The allowance for uncollectible accounts has decreased as a percentage of gross accounts receivable.
The allowance for uncollectible accounts has increased as a percentage of gross accounts receivable.
(d) If Grainger had kept its 2010 allowance for uncollectible accounts at the same percentage of gross accounts receivable as it was in 2008, by what amount would its profit have changed (ignore taxes)? HINT: Use rounded answer from part b. to calculate. Round answer to the nearest thousands.
Profit would Answerincreasedecrease
by $Answer
($ 000s)
As of December 31 ($ 000s) 2010 2009 2008 Cash and cash equivalents $ 313,454 $ 459,871 $ 396,290 Accounts receivable (less allowances fordoubtful accounts of $24,552, $25,850
and $26,481, respectively 762,895 624,910 589,416 Inventories, net 991,577 889,679 1,009,932 Prepaid expenses and other assets 87,125 88,364 73,359 Deferred income taxes 44,627 42,023 52,556 Prepaid income taxes 38,393 26,668 22,556 Total current assets $ 2,238,071 $ 2,131,515 $ 2,144,109
Explanation / Answer
a) Calculation of Gross Accounts Receivable (Amount in '000 $)
c) Calculation of percentage of uncollectible to its total accounts receivable
d) Bad debt expense reported in its income statement
d) Allowance percentage in 2010 = 3.12%
Allowance percentage in 2008 = 4.30%
Increase in allowance % = 4.30% - 3.12% = 1.18%
Therefore the profit will decrease because the allowance amount is increased.
The decrease in profit = Gross Accounts receivable for 2010*Increase in allowance %
= $787,447*1.18% = $9,292 (All figures in '000 $)
Particulars 2010 2009 2008 Accounts receivable, Net 762,895 624,910 589,416 Add: Allowance for doubtful accounts closing balance 24,552 25,850 26,481 Gross Accounts Receivable 787,447 650,760 615,897Related Questions
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