Question

Hewlett-Packard Company (HP) reports the following in its 2004 10-K report. October 31 (in millions) 2005 2004 Accounts receivable, net 59,903 510,226 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) 2005 2004 2003 Allowance for doubtful accounts accounts receivable Balance, beginning of period $286 $347 $410 Increase in slowance from acquisition Addition of bad debts provision 17 (6) 29 Deduction net of recoveries (76) 54) 92 Balance, end of period $ 227 5 286 $ 347 (a) What is the gross amount of accounts receivables for HPO in fiscal 2005 and 2004? 15 millions) 2005 2004 Gross accounts receivable OX (b)What is the percentage of the allowance for doubtful accounts to gross accounts receivable for 2005 and 2004? (Round your answers to two decimal places.) (5 millions) 2005 Percentage of uncoilectible accounts RSS accounts receivable O K (What amount of bad debts expense did HPO report each year 2003 through 2005? 1 millions) 2005 2004 Bad debt expense $ ONS ONS 0x Amount actually written on S O NS O NS 2003 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. The difference between bad debt expense and write-off during the three years has inflated HPO's cash flows reported. (d)Compute HPO's write-offs as a percentage of the allowance account at the beginning of the year (Round your answers to two decimal places). 2005 write-offs as a percentage of beginning of year allowance: 0

Answer 1

a) Gross amount of HPQ Receivables

Gross amount of HPQ Receivables	2005	2004
Amount receivable, net-A	9903	10226
Allowance for doubtful accounts-B	227	286
Gross amount of HPQ Receivables -A+B (C)	10130	10512

B)% of Allowance for doubtful accounts to Gross amount of HPQ receivables=A/C

which works out to 2.24% for 2005 and 2.72% for 2004

C)

Bad debt expense for the year will be equal to additions made to allwance

while actual bad debts written off will be equal to deductions from doubtful accounts

	2005	2004	2003
Bad debt expense	17	-6	29
Amount actually written off	76	64	92

d)HPQs write off as a % of allowance account at the begining of the year =(76/286)*100=26.57%