Mgm Mirage - Accounts Receivable

MGM MIRAGE—ACCOUNTS RECEIVABLE

1. Gross casino accounts receivable. Because in Exhibit 1a, net accounts receivable are consisted of three parts of accounts receivable which includes 174,713, and one total allowance for doubtful accounts. So $174,713 is a gross number.

2. a. The total change of allowance for doubtful accounts is consisted of three parts: Writeoffs will cause debits; recoveries will cause credits; bad debts expenses will cause debits or credits. So we have the following equation:

change in allowance for doubtful accounts=bad debts expense-net writeoffs

therefore, net writeoffs= bad debts expense- change in allowance for doubtful accounts.

Writeoffs of 2003=12,570*95%-(75,265-85,504)=$22,181

Writeoffs of 2004=(-3,629)*95%-(57,111-75,265)=$14,706

b. Writeoffs will decrease the amount of allowance for doubtful accounts and accounts receivable at the same time, so there is no impact on the amount of net accounts receivable and total assets. Recoveries will increase the amount of cash and allowance for doubtful accounts, so the amount of net accounts receivable will decrease. But the total assets also won't change. And neither writeoffs nor the recoveries will have an impact on the income statements.

3. There are five accounts involved in transactions of accounts receivable: accounts receivable, allowance for doubtful accounts, bad debts expense, sales, and cash. So we have the following equation:

change in cash+(change in accounts receivable-change in allowance for doubtful accounts)

=sales –bad debt expense

Now we calculate the cash collection of 2003 step by step.

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