Refer to the consolidated financial statements of RadioShack Corporation in Appendix B . During 2010, the company had numerous accruals and deferrals. As a new member of RadioShack’s accounting staff, it is your job to explain the effects of accruals and deferrals on net income for 2010. The accrual and deferral data follow, along with questions that RadioShack Corporation stockholders have raised (all amounts in millions):
1. Examine RadioShack’s comparative balance sheets at December 31, 2010, and 2009. Ending net receivables for 2009 (beginning balance for 2010) were $322.5 million. Ending net receivables for 2010 were $377.5 million. Which of these amounts did RadioShack Corporation earn in 2009? Which amount is included in RadioShack Corporation’s 2010 net income?
Explain the make-up of the parties who owed RadioShack Corporation and the amounts as of December 31, 2010.
2. In Note 3, Supplemental Balance Sheet Disclosures, examine the details of the account entitled “other current assets, net” What do you think is meant by “deferred income taxes”?
Why is this recorded as a current asset? The beginning balance is $69 million and the ending balance is $61 million. Construct a journal entry that might account for the $8 million change.
3. In Note 3 (Supplemental Balance Sheet Disclosures), focus on Property, Plant and Equipment, net. Notice that accumulated depreciation stood at $799 million at the end of 2009 and at $820 million at year end 2010. Assume that depreciation expense for 2010 was $70. Explain what must have happened to account for the remainder of the change in the accumulated depreciation account during 2010. (Challenge)
4. In Note 3 (Supplemental Balance Sheet Disclosures) focus on Accrued Expenses and Other Current Liabilities. RadioShack Corporation reports an account titled Advertising (meaning accrued advertising payable). This account carried a credit balance of $31.4 million at the end of 2009 and $26.9 million at the end of 2010. What type of account is Accrued Advertising Payable? What year’s income statement did the $26.9 million accrued advertising affect? What year’s income statement did the $31.4 million accrued advertising affect? Did the company’s advertising expense increase, decrease, or stay the same from 2009 to 2010?