The asset side of the 2013 balance sheet for BNSF Corporation is below. The comp

Question

The asset side of the 2013 balance sheet for BNSF Corporation is below. The company reported total revenues of $22,014 million in 2013 and $20,835 million in 2012.

Required:
a. What proportion of gross accounts receivable does BNSF record as an allowance each year? Interpret the year-over-year change in the ratio.
a. Calculate the common-sized accounts receivable, net, for 2013 and 2012.
c. Compute the accounts receivable turnover for 2013 and 2012. At December 31, 2011, accounts and other receivables, gross were $1,189 million.
d. Does the accounts receivable turnover you calculated above, seem reasonable for a railway company? Explain.

Please answer all parts of the question, math and written essay. Thank You!

Explanation / Answer

a. What proportion of gross accounts receivable does BNSF record as an allowance each year? Interpret the year-over-year change in the ratio.

Solution-

(In millions)

2013

2012

Accounts receivable, net

$1,289

$1,168

Allowance

$54

$48

Accounts receivable, gross

$1,343

$1,216

Percentage allowance

4.1%

3.9%

In the year 2013, the company records more as allowance (in both terms dollar and percentage). This means the account receivable quality is decrease.

b. Calculate the common-sized accounts receivable, net, for 2013 and 2012.

Solution-

For 2013 = $1,289 / $75,030 = 1.71%

For 2012 = $1,168 / $72,014 = 1.62%

There is difference in the common size account receivable in 2013 compared to 2012. The common size account receivable of the year 2013 is high and 2012 is low. So, the company sells accounts receivable explain the low common size.

c. Compute the accounts receivable turnover for 2013 and 2012. At December 31, 2011, accounts and other receivables, gross were $1,189 million.

Solution-

(In millions)

2013

2012

2011

Revenue

$22,014

$20,835

Accounts receivable, net

$1,289

$1,168

$1,198

Average Accounts receivable, net

$1,228.5 ($1,289+$1,168) /2

$1,183 ($1,168+$1,198) /2

Accounts receivable turnover

$17.92 ($22,014 / $1,228.5)

$17.62 ($20,835 / $1,183)

d. Does the accounts receivable turnover you calculated above, seem reasonable for a railway company? Explain

Solution-

Account receivable turnover ratio is very high considered the economic down turn in 2013 it seems difficult that the Account receivable turnover ratio improved. The fact is that BNSF sell their large percentage (%) of its receivable to a special purpose which reduce the denominator in the Account receivable turnover ratio and also improves the ratio. But we don’t know the situation of account receivable amount.

So, we not able to determine the improvement in account receivable turnover due to better collection of greater account receivable sale.

(In millions)

2013

2012

Accounts receivable, net

$1,289

$1,168

Allowance

$54

$48

Accounts receivable, gross

$1,343

$1,216

Percentage allowance

4.1%

3.9%

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