BYP 9-1 FINANCIAL REPORTING PROBLEM
(a) RLF COMPANY
Accounts Receivable Aging Schedule
May 31, 2017
Proportion
of
Total
Amount
in
Category
Probability
of Non-
Collection
Not yet due
Less than 30 days past due
.600
.220
$ 840,000
308,000
.02
.04
(b) RLF COMPANY
Analysis of Allowance for Doubtful Accounts
May 31, 2017
June 1, 2016 balance ……………………………………………. $ 29,500
Bad debts expense accrual ($2,900,000 X .045) ………. 130,500
Balance before write-offs of bad accounts …………….. 160,000
BYP 9-1 (Continued)
(c)
1.
Steps to Improve the
Accounts Receivable Situation
2.
Risks and
Costs Involved
Establish more selective credit–
granting policies, such as more
restrictive credit requirements or
This policy could result in lost sales
and increased costs of credit
evaluation. The company may be all
Establish a more rigorous collec-
tion policy either through external
collection agencies or by its own
personnel.
This policy may offend current
customers and thus risk future
sales. Increased collection costs
could result from this policy.
Charge interest on overdue accounts.
This policy could result in lost sales
BYP 9-2 COMPARATIVE ANALYSIS PROBLEM
(a)
(1)
Accounts receivable turnover
PepsiCo
Coca-Cola
$66,415
$46,854
($7,041+ $6,954) ÷ 2
($4,759 + $4,873) ÷ 2
(2)
Average collection period
(b) Both companies have reasonable accounts receivable turnovers and
BYP 9-3 COMPARATIVE ANALYSIS PROBLEM
(a)
(1)
Accounts receivable turnover
Amazon
Wal-Mart
$74,452
$473,076
($3,817 + $4,767) ÷ 2
($6,768 + $6,677) ÷ 2
$473,076
(2)
Average collection period
BYP 9-4 REAL-WORLD FOCUS
(a) Factoring invoices enhances cash flow and allows a company to meet
business expenses and take on new opportunities. The benefits of
factoring include:
• Predictable cash flow and elimination of slow payments
• Flexible financing, as factoring line is tied to sales. It’s the ideal
tool for growth.
BYP 9-5 DECISION MAKING ACROSS THE ORGANIZATION
(a)
2018
2017
2016
Net credit sales……………………………….
Credit and collection expenses
Collection agency fees ……………
Salary of accounts receivable
clerk ……………………………………
$500,000
$ 2,450
4,100
$550,000
$ 2,500
4,100
$400,000
$ 2,300
4,100
(b)
Average accounts receivable (5%) ………
Investment earnings (8% X Ave. A/R) ..
$ 25,000
$ 2,000
$ 27,500
$ 2,200
$ 20,000
$ 1,600
(c) The analysis shows that the credit card fee of 4% of net credit sales will
be higher than the percentage cost of credit and collection expenses in
BYP 9-5 (Continued)
Finally, the decision hinges on: (1) the accuracy of the estimate of
investment earnings, (2) the expected trend in credit sales, and (3) the
BYP 9-6 COMMUNICATION ACTIVITY
Of course, this solution will differ from student to student. Important factors
to look for would be definitions of the methods, how they are similar and how
they differ. Also, look for use of good sentence structure, correct spelling, etc.
Example:
Dear Jill,
The three methods you asked about are methods of dealing with uncollectible
accounts receivable. Two of them, percentage-of-sales and percentage-of–
receivables, are “allowance” methods used to estimate the amount uncollectible.
Under the percentage–of–sales basis, management establishes a percentage
relationship between the amount of credit sales and expected losses from
BYP 9-7 ETHICS CASE
(a) The stakeholders in this situation are:
The president of Diaz Co.
(b) Yes. The controller is posed with an ethical dilemma—should he/she
follow the president’s “suggestion” and prepare misleading financial
statements (understated net income) or should he/she attempt to stand up
to and possibly anger the president by preparing a fair (realistic) income
statement.
BYP 9-8 FASB CODIFICATION ACTIVITY
(a) Receivables represent contractual rights to receive money on fixed or
determinable dates, whether or not there is any stated provision for
interest. Receivables may arise from credit sales, loans, or other
(b) The conditions under which receivables exist usually involve some
degree of uncertainty about their collectibility, in which case a contin–
gency exists.
Subtopic 450-20 requires recognition of a loss when both of the following
conditions are met:
IFRS9-1 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Note 1.16 states: Trade accounts receivable are recorded at their face
value. A provision for impairment is recorded if their net realizable
value, based on the probability of their collection, is less than their
carrying amount.
(b) Note 11 indicates that provisions for impairment and product returns
accounted for the difference between gross and net trade accounts
receivable.
IFRS9-2 INTERNATIONAL FINANCIAL REPORTING PROBLEM
(a) Note 1.16 of Louis Vuitton’s annual report states that trade accounts
receivable for impairment is recorded at their face value. A provision
for impairment is recorded if their net realizable value, based on the
probability of their collection, is less than their carrying amount.
(c) The net balance of receivables increased by €204 million (10.3%)
during 2013.