The opening vignette in this chapter provided an introduction to MGM Mirage, a casino/ entertainment company. As noted there, the company has significant accounts receivable, and an extraordinarily high allowance for doubtful accounts. The following provides some additional information in relation to the company€™s accounts receivable and bad debts.
Most patrons of casinos are required to use cash to purchase chips and tokens to participate in casino games. However, casinos also provide credit (or "markers€) to some customers, particularly those who gamble large sums of money (€œhigh rollers€). An MGM Mirage disclosure in its 10-K filing with the U.S. Securities and Exchange Commission (SEC) for 2008 noted the following:
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Marker play represents a significant portion of the table games volume at Bellagio, MGM Grand Las Vegas, Mandalay Bay and the Mirage. Our other facilities do not emphasize marker play to the same extent, although we offer markers to customers at those casinos as well. We maintain strict controls over the issuance of markers and aggressively pursue collection from those customers who fail to pay their marker balances timely. These collection efforts are similar to those used by most large corporations when dealing with overdue customer accounts . . . Markers are generally legally enforceable instruments in the United States. At December 31, 2008 and 2007, approximately 52% and 47%, respectively, of our casino accounts receivable was owed by customers from the United States. Markers are not legally enforceable instruments in some foreign countries, but the United States assets of foreign customers may be reached to satisfy judgments entered in the United States. At December 31, 2008 and 2007, approximately 34% and 38%, respectively, of our casino accounts receivable was owed by customers from the Far East.
We maintain an allowance, or reserve, for doubtful casino accounts at all of our operating casino resorts.... At resorts where marker play is significant, we apply standard reserve percentages to aged account balances under a specified dollar amount and specifically analyze the collectibility of each account with a balance over the specified dollar amount, based on the age of the account, the customer€™s financial condition, collection history and any other known information. We also monitor regional and global economic conditions and forecasts to determine if reserve levels are adequate.
The final quarter of 2008 saw the beginning of a global financial crisis and a deep recession triggered by high debt loads and falling real estate prices.
The following table shows key statistics for MGM Mirage:

Required:
a. Using the above qualitative and quantitative information, evaluate whether MGM Mirage has under-, over-, or adequately provided for bad debts.
b. Considering the high percentage of casino receivables that go uncollected, would you advise MGM Mirage to curtail the issuance of markers? Why or why not?
c. Discuss the ethical considerations in the issuance of markers and how they should factor into your answer to part (b).

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($ millions) Entity-wide Net revenue Net income Accounts receivable (gross) Bad debts expense Write-offs net of recoveries Allowance for doubtful accounts receivable 2008 2007 2006 $7,209 855 403 80 $7,692 1,584 499 $7,176 648 453 48 35 90 37 86 100 Casino operations only Revenues -Tables Revenues-Slots Revenues-Other lotal casino revenues Casino accounts receivable (gross) Allowance for doubtful casino accounts $1,079 $1,228 $1,251 1,770 109 ,130 248 83 1,795 101 2,976 244 92 1,898 113 3,239 266 receivable Median age of casino accounts receivable 36 days 28 days 46 days