Question text

Reformulating Allowance for Doubtful Accounts and Bad Debt Expense

Merck & Company reported the following from its 2016 financial statements.

$ millions		2013	2014	2015	2016
Accounts receivable, net		$7,189	$6,631	$6,489	$7,019
Allowance for doubtful accounts		149	156	168	199

a. Compute accounts receivable gross for each year.

$ millions		2013	2014	2015	2016
Accounts receivable, gross		$Answer Correct The correct answer is: 7338 Mark 1.00 out of 1.00	$Answer Correct The correct answer is: 6787 Mark 1.00 out of 1.00	$Answer Correct The correct answer is: 6657 Mark 1.00 out of 1.00	$Answer Correct The correct answer is: 7218 Mark 1.00 out of 1.00

b. Determine the percentage of allowance to gross account receivables for each year.

Round answers to two decimal places (ex: 0.02345 = 2.35%).

	2013	2014	2015	2016
% allowance	Answer Correct The correct answer is: 2.03 Mark 1.00 out of 1.00 %	Answer Correct The correct answer is: 2.3 Mark 1.00 out of 1.00 %	Answer Correct The correct answer is: 2.52 Mark 1.00 out of 1.00 %	Answer Correct The correct answer is: 2.76 Mark 1.00 out of 1.00 %

c. Assume that we want to reformulate the balance sheet and income statement to reflect a constant percentage of allowance to gross accounts receivables for each year. Compute the four-year average and then reformulate the balance sheet and income statements for each of the four years. Follow the process shown in Analyst Adjustments 5.2 and assume a tax rate of 35%.

Four- year average of percentage of allowance to gross accounts receivables.

Round answer to two decimal places (ex: 0.02345 = 2.35%)

Answer

Correct The correct answer is: 2.4 Mark 1.00 out of 1.00

%

Reformulate the balance sheet and income statements.

• Use rounded answer above for computations, then round answers to one decimal place.

• Use negative signs with answers to indicate the adjustment decreases an account.

		2013	2014	2015	2016
Adjusted allowance for doubtful accts.		$Answer Correct The correct answer is: 176.1 Mark 1.00 out of 1.00	$Answer Correct The correct answer is: 162.9 Mark 1.00 out of 1.00	$Answer Correct The correct answer is: 159.8 Mark 1.00 out of 1.00	$Answer Correct The correct answer is: 173.2 Mark 1.00 out of 1.00
Balance Sheets Adjustments
Allowance for doubtful accounts		Answer Correct The correct answer is: 27.1 Mark 1.00 out of 1.00	Answer Incorrect The correct answer is: 34 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: 25.8 Mark 0.00 out of 1.00	Answer Correct The correct answer is: 0 Mark 1.00 out of 1.00
Accounts receivable, net		Answer Correct The correct answer is: -27.1 Mark 1.00 out of 1.00	Answer Incorrect The correct answer is: -34 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: -25.8 Mark 0.00 out of 1.00	Answer Correct The correct answer is: 0 Mark 1.00 out of 1.00
Deferred tax liabilities		Answer Correct The correct answer is: -9.5 Mark 1.00 out of 1.00	Answer Incorrect The correct answer is: -11.9 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: -9 Mark 0.00 out of 1.00	Answer Correct The correct answer is: 0 Mark 1.00 out of 1.00
Retained Earnings		Answer Correct The correct answer is: -17.6 Mark 1.00 out of 1.00	Answer Incorrect The correct answer is: -22.1 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: -16.8 Mark 0.00 out of 1.00	Answer Correct The correct answer is: 0 Mark 1.00 out of 1.00
Income Statements Adjustments
Bad debts expense		Answer Correct The correct answer is: 27.1 Mark 1.00 out of 1.00	Answer Incorrect The correct answer is: 6.9 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: -8.2 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: -25.8 Mark 0.00 out of 1.00
Income tax expense at 35%		Answer Correct The correct answer is: -9.5 Mark 1.00 out of 1.00	Answer Incorrect The correct answer is: -2.4 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: 2.9 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: 9 Mark 0.00 out of 1.00
Net Income		Answer Correct The correct answer is: -17.6 Mark 1.00 out of 1.00	Answer Incorrect The correct answer is: -4.5 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: 5.3 Mark 0.00 out of 1.00	Answer Incorrect The correct answer is: 16.8 Mark 0.00 out of 1.00