Lecture11 2010.10.19 PostClass

Lecture11 2010.10.19 PostClass - Lecture 11 Accounts...

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1 Lecture 11 Accounts Receivables
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Announcements • Exam 1 – Pick-up from any TA during office hours – Scores and solutions posted tonight – Re-grade request policy/procedure – Mean / Median / Std. Dev: 76 / 79 / 13.2 – 25 th / 75 th / 90 th percentiles: 67 / 87 / 91 • Recitation problems: – E6-11, E6-15, E6-18, AP6-3 • Half-way done 2
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In the news… Bank of America Q3 Earnings Announcement October 19, 2009 Midday What’s the earnings number? Briefing.com: “$0.11 better than the Thomson Reuter consensus of $0.16” BoA Earnings according to Bloomberg: estimated EPS 0.16 / actual EPS 0.308 Reuters: better-than-expected earnings BoA Earnings according to BoA: $3.1 Billion profit BoA Earnings according to Forbes: loss of $7.3 Billion BoA Earnings according to WSJ: loss of $7.3 Billion * Excluding $10.4 Billion charge related to credit card reform Reuters: “shares initially rose after BoA reported earnings that beat estimates” 10/19 daily return: -4.37% After-the-close, CNBC: “Sell-off overblown” 10/20 daily return (as of 11:15am): -3.39% Maybe it wasn’t “overblown” afterall 3 *
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What concerns might investors have about allowance accounts? What inferences might one draw from the pattern shown in the article? Why is this lower than historical average? In the news…
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5 "Our percentage is in line or higher then competitors. Second, we have taken measures to reduce [the] allowance. The two key things we have done is that we have put in a predictive dialer process to automate and ensure we contact delinquents accounts and second, we have increased our aggressiveness against our larger customers which has significantly improved our delinquents. Additionally in Q3 the timing of business sales favorably impacted [the] reserve %. Last, this does not include reserve on bad debt for consumer loans." Response from Gateway: Does it seem reasonable? A decrease by 0.47% might not sound like much, but… • Gateway met analysts' estimates of $0.46 per share for the quarter. • Without this adjustment, it would have reported $0.44 (a miss) What concerns might investors have about allowance accounts? In the news…
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6 Overview of Today’s class • Quick recap of last class • Timberland Case Study
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7 Quick recap from last class… • Bad Debt expense – Direct write-off – Allowance method • Percentage of sales • Percentage of receivables • Aging of accounts receivable
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Accounting for Allowances To record the credit sale: Accounts Receivable $100 Sales Revenue $100 To record the estimate for bad debts/allowance: Bad Debt Expense $2 Allowance for Uncollectibles $2 To record actual uncollectible accounts (WRITE-OFF): Allowance for Uncollectibles $1 Accounts Receivable $1
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9 270 Allowance Bad Debt Expense 231 231 72 72 Accounts Receivable BB 429
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Increases : Reflect new periodic estimations of default that lowers the period’s Net Income, by increasing bad debt expense Allowance for Doubtful Accounts Method Estimate the amount of uncollectable accounts receivable based on past history
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This note was uploaded on 12/18/2010 for the course ACCT 101 taught by Professor Armstrong during the Fall '09 term at UPenn.

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Lecture11 2010.10.19 PostClass - Lecture 11 Accounts...

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