Following is the current asset section from the W.W. Grainger, Inc., balance sheet.
As of December 31 ($ 000s)
|Cash and cash equivalents||$ 452,063||$ 335,491||$ 313,454|
|Accounts receivable (less allowances for
doubtful accounts of $19,449, $18,801, $24,552 respectively)
|Prepaid expenses and other assets||110,414||100,081||87,125|
|Deferred income taxes||55,967||47,410||44,627|
|Prepaid income taxes||40,241||54,574||38,393|
|Total current assets||$ 2,900,640||$ 2,694,900||$ 2,238,071|
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)
|Allowance for doubtful accounts- accounts receivable|
|Balance at beginning of period||$ 18,801||$ 24,552||$ 25,850|
|Provision for uncollectable accounts||9,504||4,761||6,718|
|Write-off of uncollectible accounts, less recoveries||(9,100)||(8,138)||(8,302)|
|Business acquisitions, foreign currency and other||244||(2,374)||286|
|Balance at end of period||$ 19,449||$ 18,801||$ 24,552|
|Gross accounts receivable||$Answer 959469||$Answer 907498||$Answer 787447|
Hint: Percentage of uncollectible accounts = Allowance for uncollectible accounts/Gross accounts receivable. Round your answers to two decimal places.
|Percentage of uncollectible
accounts to gross accounts receivable
|Answer 2.03%||Answer 2.07%||Answer 3.12%|
(c) What amount of bad debts expense did Grainger report in its income statement for each of the years 2010 through 2012?
|Bad debts expense (titled Provision for Uncollectible Accounts)||$Answer 9504||$Answer 4761||$Answer 6718|
(d) Since 2010, did the allowance for uncollectible accounts increase or decrease as a percentage of gross accounts receivable?
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.
The correct answer is: The allowance for uncollectible accounts has decreased as a percentage of gross accounts receivable.
(e) If Grainger had kept its 2012 allowance for uncollectible accounts at the same percentage of gross accounts receivable as it was in 2010, 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 Answer = decrease
Since 2010, Grainger has decreased its allowance for uncollectible accounts as a percentage of gross receivables.
Grainger’s current allowance account appears adequate since it is two times the level of current-year write-offs.
Since 2010 Grainger has decreased it allowance for uncollectible accounts by increasing its write-offs.
Grainger’s bad debt expense decreased from 2010 to 2011, but then increased in 2012.
The correct answer is: Since 2010 Grainger has decreased it allowance for uncollectible accounts by increasing its write-offs.