Financial Statement Analysis and Valuation 5th Edition by Zhang Easton McAnally Sommers

Review 5-5

Guided Examples ( REVIEW 5-5 105 AT&T Corporation reported the following information on its December 31, 2015, balance sheet. $ millions 2015 2014 Accounts receivablenet of allowances for doubtful accounts of $704 and $454 $16,532 $14,527 Footnotes to the financial statements reported, Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages." Assume the company analyzed and aged its accounts receivable at December 31, 2015, and developed the following table. $ millions Accounts Receivable % Uncollectible Current .. 1-30 days past due 31-60 days past due 61-90 days past due 91-120 days past due Over 120 days past due. $12,650 0.5% 2,785 5% 854 15% 589 25% 207 55% 151 75% AT&T's allowance for doubtful accounts had a balance of $454 million at January 1, 2015. Assume that dur- ing the year, the company wrote off accounts receivable totaling $1,166 million. This exceeded the balance in the account at the start of the year. In its 2015 Form 10-K filing, the company explained that the write- offs were higher than expected due to acquisitions of DIRECTV and wireless properties in Mexico in 2015. Required 1. As of December 31, 2015, what amount does AT&T expect to collect from its customers? 2. What is the total amount AT&T customers owe the company at December 31, 2015? 3. Use the aging schedule to determine the required balance in the allowance account at December 31, 2015. 4. What amount of bad debt expense will AT&T report on its 2015 income statement? 5. In your opinion, are AT&T's accounts receivable of higher or lower quality in 2015 as compared with 2014? Guided Examples ( REVIEW 5-5 105 AT&T Corporation reported the following information on its December 31, 2015, balance sheet. $ millions 2015 2014 Accounts receivablenet of allowances for doubtful accounts of $704 and $454 $16,532 $14,527 Footnotes to the financial statements reported, Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages." Assume the company analyzed and aged its accounts receivable at December 31, 2015, and developed the following table. $ millions Accounts Receivable % Uncollectible Current .. 1-30 days past due 31-60 days past due 61-90 days past due 91-120 days past due Over 120 days past due. $12,650 0.5% 2,785 5% 854 15% 589 25% 207 55% 151 75% AT&T's allowance for doubtful accounts had a balance of $454 million at January 1, 2015. Assume that dur- ing the year, the company wrote off accounts receivable totaling $1,166 million. This exceeded the balance in the account at the start of the year. In its 2015 Form 10-K filing, the company explained that the write- offs were higher than expected due to acquisitions of DIRECTV and wireless properties in Mexico in 2015. Required 1. As of December 31, 2015, what amount does AT&T expect to collect from its customers? 2. What is the total amount AT&T customers owe the company at December 31, 2015? 3. Use the aging schedule to determine the required balance in the allowance account at December 31, 2015. 4. What amount of bad debt expense will AT&T report on its 2015 income statement? 5. In your opinion, are AT&T's accounts receivable of higher or lower quality in 2015 as compared with 2014