1. Two years ago a customer, GHI Company, was approved for an unusually large credit sale of $5M. Recently the customer's business began to deteriorate due to the pandemic. 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 $3M without success. The GHI 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 the our company. Assume our product cost is 40% of revenue and the bad debt reserve of $2M will be fully reestablished.
1. Two years ago a customer, GHI Company, was approved for an unusually large credit sale of $5M. Recently the customer's business began to deteriorate due to the pandemic. 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 $3M without success. The GHI 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 the our company. Assume our product cost is 40% of revenue and the bad debt reserve of $2M will be fully reestablished.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:1. Two years ago a customer, GHI Company, was approved for an unusually large credit sale of $5M. Recently the
customer's business began to deteriorate due to the pandemic. 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 $3M without success. The GHI 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 the our company. Assume our
product cost is 40% of revenue and the bad debt reserve of $2M will be fully reestablished.
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