Verdi Co. builds and sells PC computers to customers. The company sells most of its products for immediate payment but also extends credit to some customers. The industry is competitive and in the most recent year many competitors showed declines in revenue. However, Verdi Co. showed stable revenues. It is later revealed that Verdi Co. made sales and extended credit to customers previously deemed to have credit scores too low for the company to extend credit. The company did not disclose this practice in its financial statements or elsewhere.

a. Explain how this practice would have enabled Verdi Co. to show stable sales.

b. How should Verdi Co. have accounted for these additional sales and related receivables in its financial statements?

c. How would the actions by Verdi Co. in the current period affect financial statements in future periods if the customers cannot pay for the computers they purchased on credit?