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Reformulating Allowance for Doubtful Accounts MGM International operates casinos and resorts across the U.S. and in China. The company reported the following in its SEC filings. We maintain an allowance for doubtful casino accounts at all of our operating casino resorts. The provision for doubtful accounts, an operating expense, increases the allowance for doubtful accounts. We regularly evaluate the allowance for doubtful casino accounts. At domestic resorts where marker play is not significant, the allowance is generally established by applying standard reserve percentages to aged account balances. At domestic resorts where marker play is significant, we apply standard reserve percentages to aged account balances under a specified dollar amount and specifically analyze the collectability of each account with a balance over the specified dollar amount, based on the age of the account, the customers financial condition, collection history, and any other known information. MGM China specifically analyzes the collectability of casino receivables on an individual basis taking into account the age of the account, the financial condition, and the collection history of the gaming promoter or casino customer.

Schedule II - Valuation and Qualifying Accounts
	Balance at	Provision	Write-offs,	Balance
Allowance for doubtful accounts	Beginning	for Doubtful	Net of	at end of
(In Thousands)	of Period	Accounts	Recoveries	Period
Year ended December 31, 2019	$87,144	$37,699	$(34,065)	$90,778
Year ended December 31, 2018	88,868	38,172	(39,896)	87,144
Year ended December 31, 2017	94,003	19,779	(24,914)	88,868
Year ended December 31, 2016	86,197	10,428	(2,623)	94,002

MGM reported the following on its balance sheets.

$ thousands	2019	2018	2017	2016
Accounts receivable, net	$612,717	$657,206	$540,545	$542,924

a. Analyze the allowance account for each of the four years by computing the ratio of the allowance to gross accounts receivable. Note: Round the percentage to two decimal places (for example, enter 14.56% for 14.55555%).

	2016	2017	2018	2019
Allowance / Accounts receivable, gross

b. Reformulate the income statement and balance sheet accounts listed below for all four years to reflect the fouryear average of the allowance to gross accounts receivable. Assume that the tax rate is 22% for all four years. Follow the process in Analyst Adjustments 5.2; income statement first, followed by the balance sheet. Note: Do not round until your final answers; round your final answers to the nearest whole dollar.

Adjustments to income statement accounts:
$ thousands	2016	2017	2018	2019
Bad debts expense
Income tax expense
Net income

Adjustments to balance sheet accounts:
$ thousands	2016	2017	2018	2019
Allowance for doubtful accounts
Accounts receivable, net
Deferred tax liabilities
Retained earnings

c. Ignoring the analysis in part b, assume that we anticipate that the coronavirus pandemic of 2020 will shrink gambling activities worldwide. This will impair existing (2019) accounts receivable. For each of the 2019 balance sheet and income statement accounts listed below indicate what adjustments would be required under the assumption that the allowance to gross receivables ratio will increase to 25% of total gross receivables. Note: Do not round until your final answers; round your final answers to the nearest whole dollar.

	$ thousands	Increase, Decrease, or No Change
Bad debts expense		IncreaseDecreaseNo change
Income tax expense		IncreaseDecreaseNo change
Net income		IncreaseDecreaseNo change
Allowance for doubtful accounts		IncreaseDecreaseNo change
Accounts receivable, net		IncreaseDecreaseNo change
Deferred tax liabilities		IncreaseDecreaseNo change
Retained earnings		IncreaseDecreaseNo change

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