1. Two years ago a customer, GHI Company, was approved for an unusually large credit sale of $5M. Recently the customer's business began to deteriorate due to the pandemic. To date it has paid only $2M against the order despite the fact that it has consumed all of the material purchased. The collections department has worked diligently to collect the remaining $3M without success. The GHI filed for bankruptcy this morning with essentially no assets to pay a large number of creditors. Evaluate the financial statement impact of the bankruptcy on the our company. Assume our product cost is 40% of revenue and the bad debt reserve of $2M will be fully reestablished.

1. Two years ago a customer, GHI Company, was approved for an unusually large credit sale of $5M. Recently the customer's business began to deteriorate due to the pandemic. To date it has paid only $2M against the order despite the fact that it has consumed all of the material purchased. The collections department has worked diligently to collect the remaining $3M without success. The GHI filed for bankruptcy this morning with essentially no assets to pay a large number of creditors. Evaluate the financial statement impact of the bankruptcy on the our company. Assume our product cost is 40% of revenue and the bad debt reserve of $2M will be fully reestablished.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter14: Property Transactions: Capital Gains And Losses, § 1231, And Recapture Provisions

Section: Chapter Questions

Problem 17DQ

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