Evaluate targets accounts receivable turnover

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Reference no: EM135665

In its fiscal year 2007 annual report, Target Corporation reported the subsequent information about its credit card receivables. Target has a policy of writing off receivables that are more than 180 days past due.

Receivables (millions) 2007 2006 2005

Year-end receivables $8,624 $6,711 $6,117

Average receivables $7,275 $6,161 $5,544

Accounts with three or more payments (60 + days) past due as a percentage of year-end receivables 4.0%, 3.5%, 2.8% Accounts with four or more payments (90+ days) past due as a percentage of year-end receivables 2.7%, 2.4%, 1.9%

Allowance for Doubtful Accounts (millions) 2007 2006 2005

Allowance at beginning of year $517 $451 $387

Bad debts provision 481 380 466

Net write-offs (428) (314) (402)

Allowance at end of year $570 $517 $451

As a percentage of year-end receivables 6.6% 7.7% 7.4%

Net write-offs as a percentage of average receivables 5.9% 5.1% 7.2%

a. A important portion of Target's credit card receivables arise from purchase at the company's stores. Target's shown revenue from product sales was $61,471 million in 2007 and $58,878 million in 2006. Evaluate Target's accounts receivable turnover for each year using gross receivables. Are customers paying more quickly in 2007?

b. What amount did Target report as accounts receivable, total on its ending 2007 balance sheet?

c. Prepare the entries (as summary journal entries) that Target made in its allowance for doubtful accounts in 2007.

d. As a percentage of year-end receivables, Target's allowance for doubtful accounts declined from 7.7 percent at end of 2006 to 6.6 percent at the end of 2007. Does that seem consistent with the information provided about the company's accounts receivables collection experience?

Reference no: EM135665

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