Interpreting Accounts Receivable and Its Footnote Disclosure

Interpreting Accounts Receivable and Its Footnote Disclosure Following is the current asset section from the W.W. Grainger Inc balance sheet.

Interpreting Accounts Receivable and Its Footnote Disclosure

Following is the current asset section from the W.W. Grainger, Inc., balance sheet.

As of December 31 ($ 000s)

2012 2011

2010

       
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)
940,020 888,697 762,895
Inventories, net 1,301,935 1,268,647 991,577
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)

2012 2011

2010

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

(a) What amount do customers owe Grainger at each of the year-ends 2010 through 2012?

($ 000s) 2012 2011 2010
Gross accounts receivable $Answer 959469 $Answer 907498 $Answer 787447

(b) What percentage of its total accounts receivable does Grainger deem uncollectible?

Hint: Percentage of uncollectible accounts = Allowance for uncollectible accounts/Gross accounts receivable. Round your answers to two decimal places.

 

($ 000s) 2012 2011 2010
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?

($ 000s) 2012 2011 2010
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

 by $Answer = 10.5 ($ 000s)

(f) Which of the following statements about Grainger’s allowance for uncollectible accounts and the related bad debts expense is false?

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.

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