Question

Gemstone Products located in New York City, is one of the world's largest producers of beauty and related products. The company's consolidated balance sheets for the 2016 and 2015 fiscal years included the following ($ in thousands): 2016 2015 Current assets: Receivables, less allowances of $133, 115 in 2016 and $88,715 in 2015 $461,500 $441,300 A disclosure note accompanying the financial statements reported the following ($ in thousands) Year Ended 2016 2015 (In thousands) Calculation of account receivables, net: Receivables Less: allowance for doubtful accounts Less: reserve for product returns Trade accounts receivable, net: $ 594,615 (123,095) (10,020) $ 461,500 $530,015 (77,795) (10,920) $441,300 Assume that the company reported bad debt expense in 2016 of $192,300 and had products returned for credit totaling $187,195 (sales price). Net sales for 2016 were $5,643,800 ($ in thousands). Required: 1. What is the amount of accounts receivable due from customers at the end of 2016 and 2015? 2. What amount of accounts receivable did Gemstone write off during 2016? 3. What is the amount of Gemstone's gross sales for the 2016 fiscal year? 4. Assuming that all sales are made on a credit basis, what is the amount of cash Gemstone collected from customers during the 2016 fiscal year?

Answer 1

Answer to Question 1 and 2:

Question 1: Accounts Receivable (gross) = Net Accounts Receivable + Allowance for Doubtful Accounts 2016 2015 $ in thousands $ in thousands Net Accounts Receivable $ 461,500 $ 441,300 Allowance for Doubtful Accounts 123,095 $ 77,795 Accounts Receivable (gross) $ 584,595 $ 519,095 Calculation (461,500 + 123,095) (441,300 + 77,795) Question 2: Write off of Accounts Receivable for 2016 - Opening Balance + Bad Debt Expense - Closing Balance The opening and closing balance represents balance of allowance for doubtful accounts. 2016 Opening Balance Add: Bad Debt Expense Less: Closing Balance Write off of Accounts Receivable for 2016 $ in thousands $ 77,795 $ 192,300 $ 123,095 $ 147,000 |(77,795 + 192,300 - 123,095) Calculation

Answer to Question 3 and 4:

Question 3: Gross Sales = Net Sales + Product Returns 2016 $ in thousands Net Sales 5,643,800 Add: Product Returns $ 187,195 Gross Sales $ 5,830,995 (5,643,800 + Calculation 187,195) Question 4: Cash Collections in 2016 - Opening Balance + Gross Credit Sales - Product Returns - Write Off - Closing Balance The opening and closing balance represents balance of accounts receivables. 2016 $ in thousands Opening Balance 530,015 Add: Gross Sales $ 5,830,995 Less: Product Returns $ 187,195 Less: Write Off $ 147,000 Less: Closing Balance 594,615 Cash Collections in 2016 $ 5,432,200 (530,015 + 5,830,995 - 187,195 Calculation - 147,000 - 594,615)