Q1. AF310 Intermediate Accounting I Homework #6 Questions A/R and Allowance for Doubtful Accounts We discussed in class how Microsoft used the bad debt estimates to manage earnings. After Microsoft was under the investigation of SEC and later settled in 2002, Microsoft disclosed the amounts of allowance for doubtful accounts very clearly on balance sheets to signal that they were clean (i.e., nothing to hide any more). Let's practice some financial statement analysis using the allowance for doubtful accounts provided by Microsoft. Use the 2022 Form 10-K of Microsoft Corporation posted on Blackboard to answer the following questions. For the numbers of the year 2020, use the following information taken from 2021 10-K of Microsoft. 75 788 2022 633 Accounts receivable, net of allowance for doubtful accounts of $751 and $788. 2020 Total assets Instructions: 2021 38,043 2020x 32,011 (1.972% $ 333,779 $ 301,311 A. Calculate the gross accounts receivable, the ending balance of allowance for doubtful accounts (ADA), and the percentage of the ADA ending balance to the gross accounts receivable for the fiscal years 2022, 2021, and 2020, assuming Microsoft estimates bad debts using one composite percentage of receivables method. B. What can you say about the changes (i.e., increase or decrease) in the one composite rate applied from the year 2020 to year 2022? What explanations would management at Microsoft provide for the changes in the one composite rates? Do you agree or disagree with the decision by the management at Microsoft? C. Calculate the ratio of the ADA ending balance to the total assets for 2022, 2021, and 2020. What can you say about the magnitude of ADA balances to the total assets? Are they material (i.e., significant) enough for investors to pay attention? D. Calculate the ratio of the ADA ending balance to the weighted average shares outstanding (basic) for 2022, 2021, and 2020. This ratio can tell us about the maximum effect on the (basic) earnings per share, if all ADA balances are expensed to net income as bad debts. Compare the ratios with the reported (basic) earnings per share. Are they material (i.e.. significant) enough for investors to pay attention? Gron totul 2087 44,261 441894 2021 2020 Gor 38,794 632,799 asset 364,840 7,464 Shar 7519 (Q2 on the next page)