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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
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).

(a)

To determine

Allowance method:

It is a method for accounting bad debt expense, where amount of uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

To compute: The percentage of allowance for doubtful accounts to the accounts receivable for MGM Resorts.

Explanation

Compute the percentage of allowance for doubtful accounts to the accounts receivable for MGM Resorts.

Percentage of allowance fordoubtful accounts to the accountsreceivable for MGM Resorts}=Allowance for doubtful accounts

(b)

To determine

To compute: The percentage of allowance for doubtful accounts to the accounts receivable for J & J manufactures.

(c)

To determine

To discuss: The possible reasons for the difference in percentage of allowance for doubtful accounts to the accounts receivable between MGM Resorts and J & J manufactures.

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