30.03.2023 - 09:55

MGM Resorts International owns and operates hotels and casinos including the MGM Grand and the Bellagio in Las Vegas, Nevada. As of a recent year, MGM reported accounts receivable of $415,654,000 and

MGM Resorts International owns and operates hotels and casinos, including the MGM Grand and the Bellagio in Las Vegas, Nevada. As of a recent year, MGM reported accounts receivable of $415,654,000 and allowance for doubtful accounts of $93,760,000. Johnson & Johnson manufactures and sells a wide range of healthcare products, including Band-Aids and Tylenol. As of a recent year, Johnson & Johnson reported accounts receivable of $10,114,000,000 and an allowance for doubtful accounts of $340,000,000.

a. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for MGM Resorts International. Round to one decimal place.

b. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for Johnson & Johnson. Round to one decimal place.

c. Possible reasons for the difference in the two ratios computed in (a) and (b) include:

a.) Casino operators historically lose money on operations.

b.) Casino operators have larger accounts receivable.

c.) Individuals who may have adequate credit worthiness could overextend themselves and lose more than they can afford if they get caught up in the excitement of gambling.

d.) Casino operations experience greater bad debt risk because it is difficult to control the credit worthiness of customers entering the casino.

Answers (1)
  • Asura
    April 6, 2023 в 23:44

    a. To compute the percentage of the allowance for doubtful accounts to the accounts receivable for MGM Resorts International, we divide the allowance for doubtful accounts by the accounts receivable and multiply by 100:

    Percentage of allowance for doubtful accounts = (Allowance for doubtful accounts / Accounts receivable) x 100 = ($93,760,000 / $415,654,000) x 100 = 22.6%

    Therefore, the percentage of the allowance for doubtful accounts to the accounts receivable for MGM Resorts International is 22.6%.

    b. To compute the percentage of the allowance for doubtful accounts to the accounts receivable for Johnson & Johnson, we use the same formula:

    Percentage of allowance for doubtful accounts = (Allowance for doubtful accounts / Accounts receivable) x 100 = ($340,000,000 / $10,114,000,000) x 100 = 3.4%

    Therefore, the percentage of the allowance for doubtful accounts to the accounts receivable for Johnson & Johnson is 3.4%.

    c. The possible reasons for the difference in the two ratios computed in (a) and (b) include:

    a.) Casino operators historically lose money on operations: This may be true, but it is not necessarily related to the percentage of the allowance for doubtful accounts to the accounts receivable. The allowance for doubtful accounts is an estimation of how much of the accounts receivable may not be collected.

    b.) Casino operators have larger accounts receivable: This could be a contributing factor, as larger accounts receivable would imply more credit is extended to customers, leading to a higher potential for bad debt.

    c.) Individuals who may have adequate credit worthiness could overextend themselves and lose more than they can afford if they get caught up in the excitement of gambling: This is a potential risk of the casino industry, as individuals may get carried away with gambling and may not be able to repay their debts.

    d.) Casino operations experience greater bad debt risk because it is difficult to control the credit worthiness of customers entering the casino: This is also a potential risk, as casinos may not have as much control over the creditworthiness of their customers as other industries.

    Overall, a combination of factors could be contributing to the difference in the two ratios, including the size of the accounts receivable, the potential for bad debt, and the difficulty in controlling the creditworthiness of customers.

Do you know the answer?
Not sure about the answer?
Find the right answer to the question MGM Resorts International owns and operates hotels and casinos including the MGM Grand and the Bellagio in Las Vegas, Nevada. As of a recent year, MGM reported accounts receivable of $415,654,000 and by subject Finance, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.
Search for other answers
New questions in the category: Finance
Authorization
*
*

Password generation