Problem Set 2
Question 1. Understanding Walmart’s financial statements In this homework we will ask you a series of questions related to revenue recognition based on Wal-Mart 2012’s Annual Report (posted on Stellar ~/Materials/Financial statements used / discussed in class). The goal is to become familiar with real financial statements.
1. How much net sales did Walmart generate for the fiscal period ending on January 31, 2012?
2. What was the balance of Walmart’s accounting receivables as of January 31, 2012?
3. What was the balance of Walmart’s allowance for doubtful accounts (ADA) as of January 31, 2012?
4. Assume that Walmart wrote-off $10 million of its accounting receivables during the fiscal year of 2012. Use the change in allowance for doubtful accounts from 2011 to 2012 to estimate the amount of bad debt expense (BDE) Walmart recorded for 2012. Use the balance sheet equation (BSE) to record this transaction.
ADA begin + BDE – Write-off = ADA end
252M + BDE – 10M = 323 * BDE = 81M
Contra Asset Equity
ADA Retained Earnings
5. At which point in time does Walmart recognize store sales?
At the time of sales.
6. At which point in time does Walmart recognize shopping card sales? Explain any differences between your answers to questions (6) and (7).
At redemption. This is because shopping cards are not actual merchandize. Walmart’s obligation isn’t fulfilled until the shopping card is redeemed for actual merchandize.
7. Suppose Walmart sold $10 million in shopping cards that have yet to be redeemed. Use the balance sheet equation (BSE) to record this transaction.
Cash Deferred Revenue
Question 2. Revenue recognition for Groupon
Groupon is a local commerce marketplace that connects merchants to consumers by offering goods and services at a discount. Traditionally,