Managerial Accounting Mgm Mirage—Accounts Receivable

Managerial Accounting MGM MIRAGE—ACCOUNTS RECEIVABLE

1.

Gross

Gross includes allowance. In Exhibit 1a we see that allowance for doubtful accounts is included (59,760 for Casino, Hotel, others), which means that 174,713 is Gross.

2a.

To estimate write-offs we shall apply Allowance method, and formula from book Ch6 p257:

Beginning balance of allowance for bad debt + Bad debt expense (“Provision for doubtful account” in the income statement) – Actual write-offs (Net write-offs) = Ending balance of allowance for bad debt

Assuming that 95% of the provision for doubtful accounts relates to casino receivable, we can calculate:

For 2003:

Net write-offs = 85,504 – 75, 265 +12,570*0.95 = 22,180.5

For 2004

Net write-offs = 75, 265-57,111-3,629*0.95 = 14,706.45

2b.

Recording these write-offs will change Balance sheet: debit allowance for doubtful accounts, and credit accounts receivable, but finally it will not change accounts receivable and total assets.

Recording these write-offs has no effect on Income statement, because write-offs already provisioned as doubtful accounts.

3.

We shall apply chapter 6 Accounting for cash collection and Accounts receivable:

Cash collection = Sales + Change in allowance for doubtful accounts receivable - Bad debt expense – Change in Casino accounts receivable

For 2003:

Sales = Casino revenues made on account 2,037,514* 40% = 815,005.6

Change in Allowance for doubtful casino accounts receivable 75,265 - 85,504 = -10,239

Bad debt expense = Provision for doubtful accounts 12,570*0.95 = 11,941.5

Change in Casino accounts receivable 159,569 – 166,612 = -7,043

Cash collection = 815,005.6 + (-10,239) - 11,941.5 – (-7,043) = 799,868.1

2004

Sales = Casino revenues made on account 2,223,965* 40%= 889,586

Change in Allowance for doubtful casino accounts receivable 57,111-75,265 = -18,154

Bad debt expense = Provision for doubtful accounts -3629*0.95=-3,447.55

Change in Casino accounts...