Question

Problem 9.2 – Determine what is a real sale (LO 9.3)

Blue, Inc., sells playground equipment to schools and municipalities. It mails invoices at the end of each month for all goods shipped during that month; credit terms are net 30 days. Sales and accounts receivable data for 20X1, 20X2, and 20X3 follow:

	Years Ending December 31,
	20X1			20X2			20X3
Sales	$	1,785,980		$	1,839,559		$	1,986,724
Accounts receivable at year-end		220,189			227,896			267,094

Required:

1. Calculate the rates of increase in sales and in receivables during 20X2 and 20X3. (Do not round intermediate calculations. Round "Sales grew" answers to the nearest whole percent and "Receivables grew" answers to 1 decimal place.)

Transaction
1	Sales Grew
	20X2
	20X3
	Receivables Grew
	20X2
	20X3

2. Do your calculations indicate any potential problems with Blue’s receivables?

Answer 1

% Increase in Sales in Year-2
Sales in Year-2		1839559
Less: Sales in Year-1		1785980
Increase in Sales		53579
Divide: Sales in Year-1	1785980
% Increase in Sales in Year-2	3%
% Increase in Sales in Year-3
Sales in Year-3		1986724
Less: Sales in Year-2		1839559
Increase in Sales		147165
Divide: Sales in Year-2	1839559
% Increase in Sales in Year-3	8%
% increase in Accounts receivable in Year-2
Accounts receivable in Year-2		227896
Less: AR balance n Year-1		220189
Increase in Accounts receivable		7707
Divide: Accounts receivable in Year-1	220189
% increase in Accounts receivable in Year-2	3.50%
% increase in Accounts receivable in Year-3
Accounts receivable in Year-3		267094
Less: AR balance n Year-2		227896
Increase in Accounts receivable		39198
Divide: Accounts receivable in Year-2	227896
% increase in Accounts receivable in Year-3	17.20%
Final Answer:
Req 1
Sales Grew:
Year-2		3%
Year-3		8%
Accounts recievable grew:
Year-2		3.50%
Year-3		17.20%
Req 2.
The potential problems lies in the fact that the % increase in Accounts receivable is higher than % increase in sales