Netters Sports Company

copyright 1999
ISBN 0-324-03398-2

Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 6 pages in length and its case teaching package is 5 pages.

Abstract

This case is centered around the "soft" accounts of a manufacturing company. The focus is on the determination of an Allowance for Doubtful Accounts and a Reserve for Obsolete Inventory.

As a newly hired staff accountant for Netters Sports Company, the student is asked to determine whether or not an Allowance for Doubtful accounts and a Reserve for Obsolete Inventory are necessary. In so doing, the student is provided with financial information relative to Sales, Accounts Receivable, Inventory, and Cost of Goods Sold. Additionally, the student is provided with Accounts Receivable Agings and selected details from the Aging reports. Finally, the student is given some brief history on certain specific Netters customers and reasons for their delinquency in payment as well as certain product lines, specifically those customers and products that might generate the need for a reserve. The student will utilize all of this information to determine the appropriate balances in the related allowance accounts.

The student is asked to calculate and interpret financial ratios relative to Accounts Receivable and I inventory. As the accountant analyzing these accounts, the student will use these ratios along with the customer biographies, inventory descriptions, and industry analysis in order to develop the appropriate reserve balance. The student will enhance his or her business writing skills by writing a memorandum aggregating all of the information into a supporting statement regarding the conclusion as to the adequacy of the account balances.

Fit Within a Course: This case is designed to be utilized in an Intermediate Accounting course. This case will draw together different forms of analysis and sharpen skills relative to "soft&dquot; accounts. Students will utilize a combination of ratio analysis, trend analysis, interaction with other company staff members and industry knowledge to appropriately determine the balances in Allowance for Doubtful Accounts and Reserve for Obsolete Inventory. Further, written summarization of conclusions will enhance the business documentation skills required by accountants.

Study Questions

1. Calculate selected financial ratios relative to Accounts Receivable and Inventory.
2. Write a narrative describing any trends in the financial ratios.
3. Aggregate the information gleaned from the information presented. Write a memorandum describing whether or not you feel that an Allowance for Doubtful Accounts is necessary and an Inventory Obsolesence Reserve is necessary.
4. Prepare the adjusting entries, if necessary, to record the appropriate account balances.