Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 8 Receivables 393

1. Compute the accounts receivable turnover for GE, excluding GECS, for 2004. Use net
   accounts receivable and round to one decimal place in your computations.


2. Compute the accounts receivable turnover for GECS for 2004. Use net accounts receivable
   and round to one decimal place in your computations.


3. Comment on the interpretation of the accounts receivable turnover for GECS.


4. As of December 31, 2004 and 2003, compute the percent of the allowance for doubtful
   accounts to total accounts receivable for GE, without GECS. Round to one decimal place.


5. As of December 31, 2004 and 2003, compute the percent of the allowance for doubtful
   accounts to total accounts receivable for GECS. Round to one decimal place.


6. Compare (4) and (5) and explain why one percentage is higher than the other.

The accounts receivable turnover ratio will vary across companies, depending upon the nature

of the company’s operations. For example, an accounts receivable turnover of six for an Internet

Services Provider is unacceptable but might be excellent for a manufacturer of specialty milling

equipment. A list of well-known companies is listed below.

Alcoa The Coca-Cola Company Kroger

AutoZone Delta Air Lines Procter & Gamble

Barnes & Noble Home Depot Wal-Mart

Caterpillar IBM Whirlpool

1. Using the PricewaterhouseCoopersWeb site, http://edgarscan.pwcglobal.com, look up
   each company by entering its name. Click on each company’s name and then scroll down
   to the bottom of the page to “Set Preferences.” Select “Receivables Turnover” in the Ratios
   list. Then click “Save Preferences.”


2. Categorize each of the preceding companies as to whether its turnover ratio is above or
   below 15.


3. Based upon (2), identify a characteristic of companies with accounts receivable turnover
   ratios above 15.

Case 8-5

Accounts receivable turnover

December 31,

2004 2003

GE (without GECS):

Total accounts receivable from sales

of goods and services $15,271 $ 11,459

Allowance for doubtful accounts 738 486

Net accounts receivable $14,533 $ 10,973

GECS:

Total accounts receivable from financing $288,347 $254,370

Allowance for doubtful accounts 5,648 6,256

Net accounts receivable $282,699 $248,114

Sales for GE (without GECS) for year ending December 31, 2004 $ 85,769

Revenue for GECS from services for year ending December 31, 2004 $ 67,097

National Broadcasting Company (NBC), GE offers network television services, operates

television stations, and provides cable, Internet, and programming services. Through General

Electric Capital Services (GECS), GE offers consumer financing, commercial and industrial

financing, real estate financing, asset management and leasing, mortgage services, and insurance

services.

For the years ending December 31, 2004 and 2003, GE reported the following data (in

millions):