ACC 550 Case 9
To: Scott Showalter
From: Dakota Shoe
RE: RedPack Beer Company – Allowance for Bad Debts
Based on my analysis of the transcript, I believe that RedPack Beer Company should increase its reserve, specifically the reserve related to Golden Holdings. Per the discussion with Katie Henson, RedPack Beer does not currently maintain a reserve for the outstanding balance of $2,706.54. Clint Maddox mentioned that RedPack would not let this receivable go uncollected and that a collection agency would be used to collect the balance. Based on the normal arrangements with the collection agency, RedPack would receive 50% of the collection they receive from the customer. Therefore, to remain consistent with RedPack’s conservative approach, I believe that Golden Holdings reserve should be increased by $1,353.47 (half of their current outstanding balance). In regards to the reserves for Distinct Beer and Eagle Beverage, I believe that these two reserves are properly valued and should remain at their current amount. These two reserves should remain the same because RedPack has already accounted for the entire outstanding balance for Eagle Beverage in which they will be issuing a credit memo for that remaining balance. RedPack has already taken conservative steps to account for Distinct Beer’s outstanding balance by including 50% of that balance in the reserve. Based on this, Distinct Beer’s reserve should remain unchanged until new circumstances arise that force the reserve to be recalculated.
There is one concern that I have in regards to the reporting of revenues and accounts receivable. My sole concern is the approach that management takes in reporting the company’s revenue. It was mentioned that management maintains a conservative approach in its accounting for accounts receivable, therefore it would be ideal to assume that they utilize the same approach for revenue recognition. However, auditors should thoroughly inspect RedPack’s revenue recognition approach
From: Dakota Shoe
RE: RedPack Beer Company – Allowance for Bad Debts
Based on my analysis of the transcript, I believe that RedPack Beer Company should increase its reserve, specifically the reserve related to Golden Holdings. Per the discussion with Katie Henson, RedPack Beer does not currently maintain a reserve for the outstanding balance of $2,706.54. Clint Maddox mentioned that RedPack would not let this receivable go uncollected and that a collection agency would be used to collect the balance. Based on the normal arrangements with the collection agency, RedPack would receive 50% of the collection they receive from the customer. Therefore, to remain consistent with RedPack’s conservative approach, I believe that Golden Holdings reserve should be increased by $1,353.47 (half of their current outstanding balance). In regards to the reserves for Distinct Beer and Eagle Beverage, I believe that these two reserves are properly valued and should remain at their current amount. These two reserves should remain the same because RedPack has already accounted for the entire outstanding balance for Eagle Beverage in which they will be issuing a credit memo for that remaining balance. RedPack has already taken conservative steps to account for Distinct Beer’s outstanding balance by including 50% of that balance in the reserve. Based on this, Distinct Beer’s reserve should remain unchanged until new circumstances arise that force the reserve to be recalculated.
There is one concern that I have in regards to the reporting of revenues and accounts receivable. My sole concern is the approach that management takes in reporting the company’s revenue. It was mentioned that management maintains a conservative approach in its accounting for accounts receivable, therefore it would be ideal to assume that they utilize the same approach for revenue recognition. However, auditors should thoroughly inspect RedPack’s revenue recognition approach