Question

Nike, Inc., is a leading manufacturer of sports apparel, shoes, and equipment. The company’s 2015 financial statements contain the following information (in millions):

	2015				2014
Balance sheets:
Accounts receivable, net	$	3,358			$	3,434
Income statements:
Sales revenue	$	30,601			$	27,799

A note disclosed that the allowance for uncollectible accounts had a balance of $78 million and $78 million at the end of 2015 and 2014, respectively. Bad debt expense for 2015 was $20 million. Assume that all sales are made on a credit basis.

Required:
1. What is the amount of gross (total) accounts receivable due from customers at the end of 2015 and 2014?
2. What is the amount of bad debt write-offs during 2015?
3. Analyze changes in the gross accounts receivable account to calculate the amount of cash received from customers during 2015.
4. Analyze changes in net accounts receivable to calculate the amount of cash received from customers during 2015.

Answer 1

Formula sheet

A	B	C	D	E	F	G	H	I	J	K	L	M	N	O	P
2		Amount in million
3			2015	2014
4		Balance Sheet
5		Accounts Receivables, net	3358	3434
6		Income Statement
7		Sales Revenue	30601	27799
8
9			2015	2014
10		Allowance for uncollectible accounts	78	78
11		Bad Debt Expense	20
12
13
14		1)
15		Account Receivables, net = Gross Accounts receivales - Allowance for uncollectible accounts
16
17		Gross Accounts receivables = Allowance for uncollectible debts +Allowance for uncollectible accounts
18
19			2015	2014
20		Accounts Receivables, net	3358	3434
21		Allowance for uncollectible accounts	78	78
22		Gross Accounts receivables	=SUM(D20:D21)	=SUM(E20:E21)	=SUM(E20:E21)
23
24		2)
25
26		Final amount of uncollectible accounts = Initial amount of uncollectible accounts + Bad Debt Expense during the year - Writeoff during the Year
27
28		Writeoff during the Year = Initial amount of uncollectible accounts + Bad Debt Expense during the year -Final amount of uncollectible accounts
29
30		For 2015
31		Initial amount of uncollectible accounts	=E10
32		Bad Debt Expense during the year	=D11
33		Final amount of uncollectible accounts	=D21
34
35		Writeoff during the Year 2015	= Initial amount of uncollectible accounts + Bad Debt Expense during the year -Final amount of uncollectible accounts
36			=D31+D32-D33	=D31+D32-D33
37
38		Hence writeoff during year 2015	=D36	million
39
40		3)
41
42		Final Gross Accounts Receivables	=Initial gross accounts receivables + Credit sales during the Year - Cash Collected during the Year -Write off during the year
43
44		Cash Collected during the Year	=Initial gross accounts receivables + Credit sales during the Year - Final Gross Accounts Receivables -Write off during the year
45
46		Cash Collected during the Year 2015	=Initial gross accounts receivables + Credit sales during the Year - Final Gross Accounts Receivables -Write off during the year
47			=E22+D7-D22-D38	=E22+D7-D22-D38
48
49		Hence Cash Collected during the Year 2015	=D47
50
51		4)
52		Cash Collected during 2015 can be calculated as follows:
53			2015
54		Sale	=D7
55		Add: decrease in net accounts receivables	=((E22-D38)-D22)	=((E22-D38)-D22)
56		Cash Collected during 2015	=SUM(D54:D55)	=SUM(D54:D55)
57		*decrease in net accounts receivables =((Initial Net Accounts receivables - writeoffs)-Final net accounts receivables)
58		Hence Cash Collected during the Year 2015	=D56
59