1. What is the total amount trade customers owe the company on account on December 31, 2020? Of this amount, how much is estimated to be uncollectible? How much is estimated to be collectible? 2. Calculate the receivable turnover ratio for WM for 2020. 3. Calculate the average collection period for WM for 2020. 4. The receivable turnover for 2019 and 2018 was 7.966 and 7.984 respectively. The average collection period for 2019 and 2018 was 45.82 days and 45.72 days respectively. Overall, what can you say about the trend in the accounts receivable turnover over that last 3 years. 5. Look at the note regarding accounts receivable in the WM 10-k excerpt. Does this explain the trend in the accounts receivable turnover? 6. Looking at the note for accounts receivable, how much was the bad debt expense for 2020? Is this an estimate or a known amount? This is an application of the principle. 7. 8. Provide the adjusting journal entry for bad debt expense in 2020. How does this adjustment effect the financial statements? Make sure to address the Income statement, Balance sheet and statement of Cash flow. 9. Looking at the note for accounts receivable, WM determined that a few customers would not pay the amount owed to them. What was the amount of write-offs for 2020? Provide the journal entry for the write offs in 2020. Audit Perspective: Now we are going to look at the adequacy of the allowance for doubtful accounts. 10. Compute the allowance for doubtful accounts/gross accounts receivable balance for 2020 and 2019. 11. The allowance for doubtful accounts/gross accounts receivable balance for 2018 was 1.480%. What can you say about the trend over the 3-year period? Based on what WM has written in their AR note, does it look like the allowance is adequate? 12. Why might WM management want to underestimate the allowance for doubtful accounts? WASTE MANAGEMENT, INC. CONSOLIDATED BALANCE SHEETS (In Millions, Except Share and Par Value Amounts) ASSETS December 31, 2020 2019 Current assets: Cash and cash equivalents. $ 553 $ 3,561 Accounts receivable, net of allowance for doubtful accounts of $33 and $28, respectively. Other receivables, net of allowance for doubtful accounts of $7 and $1, respectively 2,097 1,949 527 370 Parts and supplies. 124 106 Other assets.. 239 223 Total current assets. 3,540 6,209 Property and equipment, net of accumulated depreciation and amortization of $20,095 and $18,657, respectively. 14,148 12,893 Goodwill 8,994 6,532 Other intangible assets, net.. 1,024 521 Restricted trust and escrow accounts. 347 313 Investments in unconsolidated entities 426 483 Other assets. Total assets. Current liabilities: Accounts payable Accrued liabilities. 866 792 $ 29,345 $27,743 LIABILITIES AND EQUITY $ 1,121 1,342 $ 1,065 1,327 Deferred revenues. Current portion of long-term debt. Total current liabilities.. 539 534 551 218 3,553 3,144 Long-term debt, less current portion Deferred income taxes Landfill and environmental remediation liabilities. Other liabilities Total liabilities Commitments and contingencies 13,259 13,280 1,806 1,407 2,222 1,930 1,051 912 21,891 20,673 Equity: Waste Management, Inc. stockholders' equity: Common stock, $0.01 par value; 1,500,000,000 shares authorized; 630,282,461 shares issued 6 Additional paid-in capital Retained earnings.. 5,129 6 5,049 11,159 10,592 Accumulated other comprehensive income (loss). Treasury stock at cost, 207,480,827 and 205,956,366 shares, respectively. 39 (8,881) (8) (8,571) Total Waste Management, Inc. stockholders' equity Noncontrolling interests. 7,452 7,068 2 2 Total equity Total liabilities and equity. 7,454 7,070 $ 29,345 $ 27,743 See Notes to Consolidated Financial Statements. L WASTE MANAGEMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Millions, Except per Share Amounts) Operating revenues. Costs and expenses: Operating 2020 Year Ended December 31, 2019 2018 $ 15,218 $ 15,455 $ 14,914 9,341 9,496 9,249 Selling, general and administrative. 1,728 1,631 1,453 Depreciation and amortization 1,671 1,574 1,477 Restructuring... 9 6 (Gain) loss from divestitures, asset impairments and unusual items, net. 35 42 (58) 12,784 12,749 12,125 Income from operations 2,434 2,706 2,789 Other income (expense): Loss on early extinguishment of debt, net Basic earnings per common share. Interest expense, net.. Equity in net losses of unconsolidated entities. Other, net Income before income taxes.. Income tax expense..... Consolidated net income.. Less: Net income (loss) attributable to noncontrolling interests. Net income attributable to Waste Management, Inc. Diluted earnings per common share.. (425) (411) (374) (53) (85) (68) (55) (41) 5 (50) (541) (601) (413) 1,893 2,105 2,376 397 434 453 1,496 1,671 1,923 - 1 (2) SSS 1,496 $ 3.54 $ 1,670 3.93 $ $ 1,925 4.49 3.52 $ 3.91 $ 4.45 The following page contains an excerpt from Note 3: Summary of Significant Accounting Policies relating to accounts receivable. Accounts and Other Receivables Our receivables, which are recorded when billed, when services are performed or when cash is advanced, are claims against third parties that will generally be settled in cash. The carrying value of our receivables, net of the allowance for doubtful accounts, represents the estimated net realizable value. We estimate our allowance for doubtful accounts based on historical collection trends; type of customer, such as municipal or commercial; the age of outstanding receivables and existing as well as expected economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when our internal collection efforts have been unsuccessful. Also, we recognize interest income on long-term interest-bearing notes receivable as the interest accrues under the terms of the notes. We no longer accrue interest once the notes are deemed uncollectible. The following table reflects the activity in our allowance for doubtful accounts of trade receivables for the year ended December 31 (in millions): Balance as of January 1, Adoption of new accounting standard. Additions charged to expense Accounts written-off, net of recoveries. Acquisitions, divestitures and other, net 2020 2019 28 $ 29 (1) 51 39 (44) (43) (1) 3 33 28 Balance as of December 31,.. For trade receivables the Company relies upon, among other factors, historical loss trends, the age of outstanding receivables, and existing as well as expected economic conditions. Due to the adoption of ASU 2016-13, we recognized a $1 million pre-tax decrease to our allowance for doubtful accounts on trade receivables. We determined that all of our trade receivables share similar risk characteristics. We monitor our credit exposure on an ongoing basis and assess whether assets in the pool continue to display similar risk characteristics. In January 2020, a novel strain of coronavirus ("COVID-19") was declared a Public Health Emergency of International Concern and subsequently declared a global pandemic in March 2020. Throughout the COVID-19 pandemic, the Company has proactively taken steps to put our employees' and customers' needs first and we continue to work with the appropriate regulatory agencies to ensure we can provide our essential waste services safely and efficiently. With this in mind, during the first half of 2020 we extended payment terms and postponed collections and service discontinuation for customers who were negatively impacted by the COVID-19 pandemic. These actions contributed to an increase in the aging of outstanding balances. Improved economic conditions during the second half of 2020 have allowed us to return to more regular business practices, in accordance with our contractual terms. As of December 31, 2020, we had $2,097 million of trade receivables, net of allowance for doubtful accounts of $33 million. The allowance for doubtful accounts has increased by $5 million during 2020, largely due to the COVID-19 pandemic. Based on aging analyses as of December 31, 2020 and 2019, approximately 90% of our trade receivables were outstanding less than 60 days. For other receivables, as well as loans and other instruments, the Company relies primarily on credit ratings and associated default rates based on the maturity of the instrument. All receivables, as well as other instruments, are adjusted for our expectation of future market conditions and trends. Due to the adoption of ASU 2016-13, we recognized a $4 million pre-tax increase to our allowance for doubtful accounts on notes and other receivables. As of December 31, 2020, we had $703 million of notes and other receivables, net of allowance of $8 million. As of December 31, 2019, we had $544 million of notes and other receivables, net of allowance of $1 million. Based on an aging analysis as of December 31, 2020 and 2019, approximately 75% and 70%, respectively, of our other receivables were due within 12 months or less