Interpreting the Accounts receivable Footnote Hewlett-Packard Company (HPQ) reports the following in its 2007 10-K report. October
Question:
Interpreting the Accounts receivable Footnote Hewlett-Packard Company (HPQ) reports the following in its 2007 10-K report.
| October 31 (in millions) | 2008 | 2007 |
|---|---|---|
| Accounts receivable, net | $16,928 | $13,420 |
HPQ footnotes to its 10-K provide the following additional information relating to its allowance for doubtful accounts.
| For the fiscal years ended October 31 (in millions) | 2008 | 2007 | 2006 |
|---|---|---|---|
| Allowance for doubtful accounts-accounts receivable | |||
| Balance, beginning of period | $ 226 | $ 220 | $ 227 |
| Increase in allowance from acquisition | 245 | 3 | 4 |
| Addition of bad debts provision | 226 | 32 | 37 |
| Deductions, net of recoveries | (144) | (29) | (48) |
| Balance, end of period | $ 553 | $ 226 | $ 220 |
(a) What is the gross amount of accounts receivables for HPQ in fiscal 2008 and 2007?
| ($ millions) | 2008 | 2007 |
|---|---|---|
| Gross accounts receivable | Answer | Answer |
(b)What is the percentage of the allowance for doubtful accounts to gross accounts receivable for 2008 and 2007? (Round your answers to two decimal places.)
| ($ millions) | 2008 | 2007 |
|---|---|---|
| Percentage of uncollectible accounts to gross accounts receivable | Answer% | Answer% |
(c)What amount of bad debts expense did HPQ report each year 2006 through 2008? What amount was actually written off?
| ($ millions) | 2008 | 2007 | 2006 |
|---|---|---|---|
| Bad debt expense | $Answer | $Answer | $Answer |
| Amount actually written off | $Answer | $Answer | $Answer |
Which of the following statements describes how bad debts expense compares with the amounts of its accounts receivable actually written off?
Generally, HP has overestimated its accruals, which has deflated profit by the over-accrual of bad debts.
Generally, HP has underestimated its accruals, which has inflated profit by the under-accrual of bad debts.
The difference between bad debt expense and write-off during the three years is insignificant so it appears that profit has been fairly stated.
Generally, HP has overestimated its accruals, which has inflated profit by the over-accrual of bad debts.
(d)Compute HPQ's write-offs as a percentage of the allowance account at the beginning of the year (Round your answers to two decimal places).
2008 write-offs as a percentage of beginning of year allowance: Answer%
2007 write-offs as a percentage of beginning of year allowance: Answer%
What inferences can we draw as a result of changes in the allowance for doubtful accounts from 2007 to 2008?
The allowance for uncollectible accounts has increased as a percentage of gross accounts receivable in 2008. We can , therefore, expect write-offs to increase.
HPQ's write-offs as a percentage of the allowance decreased from 2007-2008. By this measure it appears that HPQ is accurately accruing for anticipated credit losses.
The allowance for uncollectible accounts has decreased as a percentage of gross accounts receivable in 2008. This means that HPQ is over-stating its bad debt expense in the current year.
HPQ's write-offs as a percentage of the allowance increased from 2007-2008. The increase in write-off is reflected in their income statement as a corresponding reduction of bad debt expense and an increase in profit.
Expert Answer:
Answer Answera 2008 2007 Gross Account receivable 17481 13646 Answerb 2008 2007 Percentage of uncoll... View the full answer
