This case is based on RadioShack Corporation’s consolidated balance sheets, consolidated statements of income, and Note 2 of its financial statements (Significant Accounting Policies) in Appendix B at the end of this book.
1. Describe RadioShack Corporation’s revenue recognition policy. From what sources do they earn most of their revenue?
2. Since RadioShack is a consumer retail business, most of its retail sales are cash sales. However, accounts receivable still comprise about 21% ($377/$1,779) of its current assets. What customers do business with RadioShack on account? Why is this necessary? What is the average payment term for these receivables?
3. Compute the following for 2010:
a. Average daily sales.
b. Days’ sales to collection for accounts receivable.
c. Compare 3(b) with the average payment term for accounts receivable. Did the company perform better or worse than its normal payment terms for its credit customers?
4. Evaluate RadioShack Corporation’s liquidity as of December 31, 2010, and compare it with 2009. What other information might be helpful in evaluating these statistics?