Textbook Problem

Nature of uncollectible accounts

MGM Resorts International owns and operates hotels and casinos including the MGM Grand and the Bellagio in Las Vegas, Nevada. As of a recent year, MGM reported accounts receivable of $570,348,000 and allowance for doubtful accounts of $89,789,000. Johnson& Johnson manufactures and sells a wide range of health care products including BandAid^® bandages and Tylenol^®. As of a recent year, Johnson & Johnson reported accounts receivable of $11,002,000,000 and allowance for doubtful accounts of $268,000,000.

1. a. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for MGM Resorts International. Round to one decimal place.
2. b. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for Johnson & Johnson. Round to one decimal place.
3. c. Discuss possible reasons for the difference in the two ratios computed in (a) and (b).