P5-54. Interpreting Accounts Receivable and Related Footnote Disclosure LO5 WW.
ID: 2340222 • Letter: P
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P5-54. Interpreting Accounts Receivable and Related Footnote Disclosure LO5 WW. GRAINGE Following is the current asset section from the W.W. Grainger Inc. balance sheet. INC. As of December 31 ($ 000s) Cash and cash equivalents Accounts receivable (less allowances for doubtful 2015 2014 2013 S 290,136 226,644 430,644 accounts of $22,288, $22,121 and $20,096, respectively) Prepaid expenses and other assets. Deferred income taxes Prepaid income taxes. 1,209,641 1.172,924 101,656 414,177 1,356,396 1305,520 115,331 75,819 5,315 85,670 102,669 61,387 47,529 49.018 Grainger reports the following footnote relating to its receivables. Allowance for Doubtful Accounts The following table shows the activity in the allowance for doubtful accounts. For Years Ended December 31 ($ 000s) 2015 2014 2013 Balance at beginning of period Provision for uncollectible accounts Write-off of uncollectible accounts, net of recoveries Business acquisitions, foreign currency and other.... Balance at end of period $22.121 10,181 (10,495) 481 $20,096 12,945 9,628) (1,292) $22,121 $19,449 8,855 7,942) $22288 20,096 Required a. What amount do customers owe Grainger at each of the year-ends 2013 through 2015? b. What percentage of its total accounts receivable does Grainger deem uncollectible? (Hint: Percentage of uncollectible accounts Allowance for uncollectible accounts /Gross accounts receivable C. what amount of bad debts expense did Grainger report in its income statement for each of the years 2013 through 2015? 49 Module 5 and Operating Income d. Explain the change in the balance of the allowance for uncollectible accounts since 2013. Specifically did the allowance increase or decrease as a percentage of gross accounts receivable, and why? e. If Grainger had kept its 2015 allowance for uncollectible accounts at the same percentage of gross s receivable as it was in 2013, by what amount would its pretax profit have changed? Explain. f Overall, what is our assessment of Grainger's allowance for uncollectible accounts and the related bad debts expense?Explanation / Answer
Year 2015 2014 2013 Items Requirement a Customer owe Grainger Balance after allowance for doubtful debt 1209641 1172924 1101656 Add : Allowance for doubtful debt 22288 22121 20096 Customer owe Grainger 1231929 1195045 1121752 Requirement b % of its total Accounts Receivable does Grainger deem uncollectible Allowance for uncollectible accounts 10181 12945 8855 Gross Accounts Receivable in requirement a 1231929 1195045 1121752 % of its total Accounts Receivable does Grainger deem uncollectible 0.826427 1.083223 0.78939 Requirement c Amount of bad-debt expense Grainger reported in its Income Statement =Provision for uncollectible accounts 10181 12945 8855 Requirement d % of Balance of doubtful accounts to Gross Accounts Receivable 1.809195 1.85106 1.791483 Increase or (decrease) of allowance as % of gross accounts receivable -0.04186 0.059577 We can see that % of 2014 has increased compared to % of 2013 Also, we can see that % of 2015 has decresed compared to % of 2014 This is due to reason that write-off and business acquistion and foregin currency and other were less than its provision for uncollectible accounts in the year 2014. Also there is high provision for collectible accounts in the year 2014 While write off is more than its provision in 2015 and % of provision of uncollectible accounts to Gross Accounts receivable has decreased in the year 2015. Requirement e If Grainger kept its 2015 allowance for uncollectible accounts at % of 2013 its pretax profit would change by amount = % of Allowance for Uncollectible accounts for 2013 0.78939 Gross Receivable in 2015 1231929 Allowance for uncollectibela accounts or Bad debt expense for 2015 at % of 2013 9725 Actual bad-debts expense provided in 2015 10181 Its pretax profit would have been higher by 456 Requirement f It seems that they using aging schedule & percentage method to provide for provision for uncollectible accounts. Overall, there is not much change in terms of percentage for providing bad-debts and Balance in doubtful accounts.
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