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:

Required:

1. Calculate the rates of increase in sales and in receivables during 20X2 and 20X3.

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

3. If so, suggest a possible explanation for your findings and indicate what action, if any, would then be needed to bring Blue’s financial statements into conformity with GAAP.

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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