Question

2005 $544,894 Interpreting Accounts Receivable and Its Footnote Disclosure Following is the current asset section from the W.W. Grainger, Inc., balance sheet. As of December 31 ($ 000s) Cash and cash equivalents Marketable securities at cost, which approximate market value Accounts receivable (less allowances fordoubtful accounts of $25,830, $18,801 and $18,401, respectively Inventories, net Prepaid expenses and other assets Deferred income taxes Prepaid income taxes Total current assets 2007 $113,437 20,074 602,650 946,327 61,666 56,663 2006 $348,471 12,827 566,607 827,254 58,804 48,123 518,625 791,212 54,334 76,474 $ 1,800,817 $ 1,862,086 $ 1,985,539 Grainger reports the following footnote relating to its receivables. Allowance for Doubtful Accounts: The following table shows the activity in the allowance for doubtful accounts. 2007 2006 2005 For Years ended December 31 ($ 000s) Allowance for doubtful accounts-accounts receivable Balance at beginning of period Provision for uncollectable accounts Write-off of uncollectible accounts, less recoveries Foreign currency exchange impact Balance at end of period $ 18,801 $ 18,401 $ 23,375 15,436 6,057 1,326 (8,755) (5,660) (6,380) 348 3 80 $ 25,830 $ 18,801 $ 18,401 (a) What amount do customers owe Grainger at each of the year-ends 2005 through 2007? ($ 000s) 2007 2006 2005 Gross accounts receivable $

Answer 1

(a)	Gross accounts receivable=accounts receivable,net+allowance for doubtful accounts
					2007	2006	2005
	Accounts receivable,net			a	602650	566607	518625
	Allowance for doubtful accounts			b	25830	18801	18401
	Gross accounts receivable			a+b	628480	585408	537026
(b)	Percentage of uncollectible accounts to gross accounts receivable=allowance for doubtful accounts/Gross accounts receivable
					2007	2006	2005
	Allowance for doubtful accounts			a	25830	18801	18401
	Gross accounts receivable			b	628480	585408	537026
	Percentage of uncollectible accounts			a/b	4.11%	3.21%	3.43%
c)	Baddebt expense=provision for uncollectable accounts
					2007	2006	2005
	Baddebt expense				15436	6057	1326
d)	The allowance for uncollectible accounts has increased as a percentage of gross accounts receivable (3.43% to 4.11%)