ACCT 652 Accounts Receivable Turnover and Average Collection

ACCT 652 OL

Progress Test 3

Student name
Problem 1

35

Problem 2
Part A

20

Part B

20

Problem 3

20

Problem 4

30

TOTAL

125

PROBLEM # 1: Accounts Receivable Turnover and Average Collection
Period (35 points)
Part A: Multiple Choice Questions
1) The 2013 financial statements of Leggett & Platt, Inc. include the following information in
a footnote. What are the company’s gross accounts and other receivables at the end of 2013?
(in millions)

2013

2012

Allowance for doubtful accounts

$15.2

$19.2

$467.4

$446.2

Total accounts and other receivables, net

A) $467.4 million
B) $471.4 million
C) $452 million
D) $482.6 million
E) None of the above

2) The 2013 income statements of Leggett & Platt, Inc. reports net sales of $3,746.0 million.
The balance sheet reports accounts receivable, gross of $482.6 million at December 31,
2013 and $465.4 million at December 31, 2012. The average collection period in 2013 was:
A)
B)
C)
D)
E)

46 days
10 days
47 days
8 days
None of the above

3) The 2013 annual report of Oracle Corporation included the following information
relating to their allowance for doubtful accounts: Balance in allowance at the beginning of
the year $323 million, accounts written off during the year of $145 million, balance in
allowance at the end of the year $296 million. What did Oracle Corporation report as bad
debt expense for the year?
A)
B)
C)
D)
E)

$27 million
$178 million
$118 million
$151 million
None of the above

Dr. Andreas Simon, ACCT 652 OL

4) Cocoa Beach Surf Shop receives information that requires the company to increase its
expectations of uncollectible accounts receivable. Which of the following does not occur
on the company’s financial statements?
A)
B)
C)
D)
E)

Bad debt expense is increased
Accounts receivables (gross) is reduced
Net income is reduced
The allowance account is increased
None of the above

5) The 2013 financial statements of BNSF Railway Company report total revenues of
$22,014 million, accounts receivable of $1,298 million for 2013 and $1,168 million for
2012. The company’s accounts receivable turnover for the year is:
A)
B)
C)
D)
E)

17.0 days
8.9 times
18.8 days
17.9 times
None of the above

Part 2: True or False
Please put in the empty cells whether the statement is True or False?
Accounts receivables (net) reported in the current asset section of a
company’s balance sheet represents the total amount owed by
customers within the next year.
Overestimating the allowance for uncollectible accounts receivable
can shift income from the current period into one or more future
periods.
The financial statement effects for uncollectible accounts occur
when the company writes off the account because that is when all
the uncertainty is resolved.
In order to report accounts receivable, net, companies estimate the
amount they do not expect to collect from their credit customers.

Dr. Andreas Simon, ACCT 652 OL

PROBLEM #2: Inventory Flow (40 Points)
Part A: Cost of Goods Sold Using FIFO and LIFO Methods (20 Points)
Fischer, Inc. had the following inventory in fiscal 2013. Compute the company’s cost of goods
sold for fiscal 2013 assuming the company used a) FIFO and b) LIFO methods of accounting for
inventory: PLEASE SHOW YOUR WORKINGS IN EXCEL

Beginning Inventory, January 1, 2013: 130 units @ $10.00
Purchase 200 units @ $12.00
Purchase 50 units @ $9.00
Purchase 110 units @ $10.50
Ending Inventory, December 31, 2013: 120 units

Part B: Change of inventory method: (20 points)
Please put in the empty cells whether the statement is True or False?
LIFO inventory costing yields more accurate reporting of the
inventory balance on the balance sheet.

Companies using LIFO are required to disclose the amount at which
inventory would have been reported had it used FIFO. Similarly,
companies using FIFO are required to disclose what their inventory
would have been if the company had used LIFO.

In general, in a period of falling prices, LIFO produces higher gross
profits than FIFO.
Increasing inventory turnover rate will improve profitability.

Dr. Andreas Simon, ACCT 652 OL

PROBLEM# 3: Depreciation(20 points)
Part A: Depreciation Expense Calculations (20 Points)
The Rialto Theatre purchased a new projector costing $74,000 on January 1, 2012. Because of
changing technologies, the projector is estimated to last five years after which it will be obsolete
and have a salvage value of $2,000 as a collectors’ item. Compute the depreciation expense for
ALL YEARS using:

a. The straight-line method
b. Double-declining-balance method

Please show your workings in Excel.

Dr. Andreas Simon, ACCT 652 OL

PROBLEM# 4: Computing and estimating useful life (30 points)
Please show your workings in Excel.
Following are selected disclosures from Cabela’s (an outdoor adventure superstore):
PROPERTY AND EQUIPMENT (in thousands)
Depreciable
Life in Years
Land and improvements

2013

2012

Up to 20

$216,826

$185,916

Buildings and improvements

7 to 40

780,116

640,666

Furniture, fixtures and equipment

3 to 15

643,394

551,904

Up to 30

15,611

13,255

1,655,947

1,391,741

(550,101)

(473,847)

1,105,846

917,894

181,699

103,762

$1,287,545

$1,021,656

Assets held under capital lease
Property and equipment
Less accumulated depreciation and amortization

Construction in progress

Required:
a. Compute the PPE turnover for 2013 (Total revenue in 2013 is $3,205,632 thousand).
Does the level of its PPE turnover suggest that Cabela’s is capital intensive? (Hint: The
median PPE turnover for all publicly traded companies is approximately 1.3.)
b. Do you believe that Cabela’s balance sheet reflects all of the company’s operating
assets?
c.

Cabela’s reported depreciation expense of $93,407 thousand in 2013. How much of this
related to Land and improvements? How much of this expense related to Construction in
progress? Explain.

d. Assuming that Cabela’s uses straight-line depreciation, estimate the useful life of its
depreciable PPE assets.
e. By what percentage are Cabela’s assets “used up” at year-end 2013? What implication
does the assets-used-up ratio have for forecasting Cabela’s cash flows?

Dr. Andreas Simon, ACCT 652 OL