Chapter 8 Receivables 39 EX 8-2 Nature of uncollectible accounts OBJ. 2 MGM Reso

Question

Chapter 8 Receivables 39 EX 8-2 Nature of uncollectible accounts OBJ. 2 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 re- ceivable of $592,937,000 and allowance for doubtful accounts of $101,207,000 Johnson & Johnson manufactures and sells a wide range of healthcare products including Band-Aids and Tylenol. As of a recent year, Johnson & Johnson reported accounts receivable of $11,775,000,000 and allowance for doubtful accounts of $466,000,000. a. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for MGM Resorts International. Round to one decimal place. receivable for Johnson & Johnson. Round to one decimal place. (a) and (b). b. Compute the percentage of the allowance for doubtful accounts to the accounts c.Discuss possible reasons for the difference in the two ratios computed in Worl Ch FINANCIAL & MANAGERIAI ACCOUNTING tarren Reeve/Duchac

Explanation / Answer

Particulars MGM Resorts Johnson & Johnson Allowance for doubtful accounts           101,207,000                  466,000,000 Accounts Receivable           592,937,000           11,775,000,000 Ratio                       0.1707                             0.0396 Possible reasons for difference in ratios: a. They belong to different industries ( MGM to service vs J&J to Pharmaseuticals) b. The age of MGM resorts allowance might be higher than J&J.

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