P6-45. Interpreting Accounts Receivable and Uncollectible Accounts Nordstrom, Inc. provided the following information concerning its accounts receivable in note 3 of its 10-K report dated February 1, 2014 (fiscal year 2013): NOTE 3: ACCOUNTS RECEIVABLE The components of accounts receivable are as follows: Total credit card receivables....... Allowance for credit losses ...... Credit card receivables, net...... Other accounts receivable... Accounts receivable, net......... 2013 .. $2,184 (80) 2,104 2012 $2,142 (85) 2,057 72 $2,177 $2,129 Activity in the allowance for credit losses for the past two fiscal years is as follows: Fiscal year 2013 2012 $85 $115 52 42 Allowance at beginning of year .. Bad debt provision.......................................... Write-offs ........... Recoveries .................. Allowance at end of year. ......... .......................... (97) $ 85 Credit Quality The primary indicators of the credit quality of our credit card receivables are aging and delinquency, particularly the levels of account balances delinquent 30 days or more as these are the accounts most likely to be written off. The following table illustrates the aging and delinquency status of our credit card receivables: February 1, 2014 February 2, 2013 Balance % of Total Balance % of Total $2,046 99 93.7% 4.5% $2,018 94.2% 3.9% Current ......... 1-29 days delinquent... 30+ days delinquent: 30-59 days delinquent. 60-89 days delinquent ......... 90 days or more delinquent ....... Total 30+ days delinquent... ..... Total credit card receivables.......... 0.7% 0.4% 0.7% 1.8% 0.7% 0.5% 0.7% 39 1.9% 100.0% $2,184 100.0% $2,142 REQUIRED a. What amount did Nordstrom report as accounts receivable, net in its February 1, 2014 balance sheet? b. Prepare journal entries to record the provision for bad debts, write-offs of uncollectible ac- counts, and recoveries in fiscal 2014. Post these entries to T-accounts. How should Nordstrom record recoveries? c. Compute the ratio of allowance for credit losses to total credit card receivables for fiscal 2012 and 2013. Speculate as to what might be the cause of any change that you observe. d. Nordstrom reported net sales of $12,166 million in fiscal 2013. Compute its accounts receiv- able turnover and average collection period for that year
