Refer to Wendy’s financial statements in Appendix D. Review the financial statements to determine how and where current assets have been reported.

Required

a. Did Wendy’s disclose how it calculated the allowance for uncollectible accounts? Is it essential for a financial analyst to know which method has been used? What reliance can an analyst place on the firm’s disclosure of its allowances?

b. If the allowance amounts were not separately disclosed, discuss how they have been included in the firm’s balance sheet.

c. Calculate the following accounts receivable ratios (assume that the doubtful account amounts pertaining to royalties are netted in the accounts receivable):

• Accounts receivable as a percentage of sales

• Average sales per day

• Collection period (Note: Wendy’s uses a 52/53 week year.)

• Allowance for uncollectible accounts as a percentage of accounts receivable