Question

Please refer to a partial footnote from 1999 Callaway Golf Co. After long economic boom US firms were facing a major economic slowdown from 1999 and on. Some of the investors questioned Callaway’s accounting treatment of account receivables and inventory obsolescence. Please compute how much Callaway managed up or down their 1999 earnings compared to 1998 by analyzing account receivable and Inventory accounts. a. Account Receivables: b. Inventory Obsolescence: c. Summary conclusions:

Save SELECTED FINANCIAL STATEMENT INFORMATION December 31, 1999 (in thousands) 1998 Cash and cash equivaients: Cash, interest bearing Cash, non-interest bearing S110,157$ 41.689 3,929 2,445 $112,602$ 45,618 $ 59,543 | $ 83,405 S 54,252$ 73,466 Accounts receivable, net: Trade accounts receivable Allowance for doubtful accounts (5,291) (9,939) inventories, net: $ 45,868 $102,352 1,820 81,868 186,040 (14.994)(36,848) 97,938$149.192 Raw materials Work-in-process Finished goods 1,403 65,661 112,932 Reserve for obsolescence

Answer 1

Particulars	1999	1998	Change
Accounts receivable net:
Trade receivable	59543	83405
Allowance for doubtful debts	(5291)	(9939)	Decrease by 4648
Accounts receivable net:	54252	73466	Decreased by 19214
Reserve for Inventory obsolescence	(14994)	(36848)	Decreased by 21854

a. Accounts receivable has been decreased from 1998 to 19999. The trade receivable which has decreased, it would not affect income because it affects assets, as cash has been collected and accounts receivable has been reduced. So the earnings would be from doubtful debts, amount to 4648.

b. Earnings from inventory obsolescence is 21854.

c. Overall, cash has been increased due to collection from debtors. Thus, receivables has been decreased. Inventory has been decreased along with its reserve for obsolescence. Stock has been sold that's the reason for change in cash in a large amount.