Question

Samans is the president of Ar- 25) The sale of receivables to a third party is ca Al factoring B) collateraling Cdiscounting D) securitization more conservative in their business decision-making. nd to compensation committee requests for information 26) A clawback provision in an employment contract requires managers to become more conservative in their business de requires managers to respond to compensation committee reques C) requires managers to return bonuses res managers to return bonuses received in the event of a financial statement restatement requires managers to refrain from making discretionary accruals 27) Which one of the following explanations to ch one of the following explanations for the growth of accounts receivable outstrippers sales represents a red flag? the firm adopts new credit terms that lengthen the ment terms to the industry avere 8) The firm adopts an aggressive revenue recognition policy C) The firm develops an attractive credit policy for first time buyers by the firm changes its timing of revenue recognition to a more conservative approach Part II : Short Answer 1 Playscapes, Inc. sells playground equipment to schools and municipalities. Invoices are mailed at each month for all goods shipped during that month: credit terms are net 30 days. Sales and acco receivable data for 2016, 2017, and 2018 were as follows (6 points): 2016 2018 $2,980,000 $ 411,000 2017 $2,755,000 $ 352,000 $ $ Sales Year-end receivables 2,675,000 330,000 Required: a. Calculate the growth rates in sales and receivables during 2017 and 2018. b. Do your calculations indicate any potential problems with Playworld's receivables? If so, su explanation for your findings. (Provide sufficient analysis to earn several points.)

question 2

question 1

Answer 1

25) The sales of receivables to a third party is called as factoring.

26) A clawback provision in an employment contract requires managers to return the bonuses received in the event of a financial statement restatement.

27) In this case the firm adopts new credit terms that lengthen the payment terms to the industry average.

Part ii Short Answer

a) Growth rate in receivables during 2017 and 2018

2017 Growth rate of receivables = Receivables / sales  

= $ 352,000 / 2,755,000 = 0.1277 or 12.77%

2018 Growth rate of receivables = Receivables / sales

= $ 4,11,000 / 2,980,000 = 0.1379 0r 13.79%

• Growth rate in sales during the period 2017 and 2018

2017 Growth rate in sale = ( Current period net sales - Prior period net sales ) / Prior period net sales * 100

= (2,755,000 - 2,675,000) / 2,675,000 *100

= 2.99%

2018 Growth rate in sale = ( 2,980,000 - 2,755,000) / 2,755,000*100

= 225000 / 2,755,000*100

=8.16%

b) Playworld's growth rate in terms of receivables for 2017 was 12.77% which further increased to 13.79% in 2018. So, Playworld's receivables doesn't indicate any potential problem.

Playworld's growth rate in terms of sales was also being increased from 2.99% to 8.16%.