Question: Canaday Ltd has the following receivables balances M Gross Accounts Receivable

Canaday Ltd. has the following receivables balances ($M)
Gross Accounts Receivable .....$175
Bad Debt Reserve..... (3)
Net Accounts Receivable..... $172
Two years ago a customer was approved for an unusually large credit sale of $7M over the objections of the credit and collections department. Shortly after the sale the customer’s business began to deteriorate due to an unexpected recession. 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 $5M without success. The customer 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 Canaday. Assume Canaday’s product cost is 40% of revenue and the bad debt reserve of $3M will be fully reestablished.

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  • CreatedMay 14, 2015
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