Mgm Resorts International: Accounts Receivable

Abstract

An analyst's manager at a local investment firm had been reading through a recent report regarding MGM Resorts International when he noticed a drop in the company's bad debt expense estimate for 2016. He had asked an analyst at the firm to investigate. The manager knew a decrease like this could indicate an improvement in collectability from customers, but he also knew the expense was subject to estimates from management. He needed to know whether to interpret the decline as a good sign or not.This case is intended for use in an introductory financial accounting course to demonstrate the impact of accounts receivable on financial statements.

Excerpt

UVA-C-2401

Rev. Nov. 30, 2017

MGM Resorts International: Accounts Receivable

As an analyst with a local investment firm, Jane Douglas had the opportunity to work on some interesting projects. This one would be no exception. Her manager, Evan Crenshaw, had been reading through a recent report regarding MGM Resorts International (MGM Resorts) when he noticed a drop in the company's bad debt expense estimate for the year 2016. He had asked Douglas to investigate. He knew a decrease like this could indicate an improvement in collectability from customers, but he also knew the expense was subject to estimates from management. He needed to know whether to interpret the decline as a good sign or not.

Douglas had only been to a casino a couple of times, but on both occasions, she had found the experience fascinating. Her first visit to a casino had been during a trip with friends to Las Vegas, Nevada, three years ago. She wasn't sure what to expect, but after entering, she followed her friends to the slot machines. That's where most of her friends spent their time, and they seemed to know a bit about how to play. Douglas started with the quarter slots. She obtained a prepaid card at a kiosk and inserted it into one of the machines; the balance on the card increased or decreased depending on whether she won or lost the round, and after a few rounds, she cashed in her card at the same kiosk where she had obtained it and received a little more than she had paid for it in return.

Then she strolled around the casino to get an idea of what else there was to do. She saw blackjack, craps, roulette, poker, and other table games being played on the main casino floor. She didn't try her hand at any of these—they were beyond her comfort level. She noticed that some customers obtained chips from the dealer in exchange for cash right there at their table, while the dealer gave other customers a document known as a “marker,” to sign, after which they received chips without any cash changing hands. Still other players arrived at their table with a marker they had obtained at the cashier's cage, presented it to the dealer, and received chips in exchange. Douglas very much enjoyed watching customers play the table games and spent much of her time just observing players winning rounds and accumulating chips, or losing rounds and chips when their luck wasn't good. When customers finished their table-game play, she noticed some of them took their remaining chips to the cashier's cage to exchange for cash.

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Keywords: accounts receivable, financial statements, collectability estimate, markers