Exercise $1$

As of the end of $2019,$ Stanley Black & Decker had outstanding accounts receivables in the amount of

$$1\mathrm{.}57$ billion but only reported $$1\mathrm{.}45$ billion on its balance sheet. $($Pratt p $243)$

Why would this be the case?

Exercise $2$

For many years Sears offered financing to its customers through a separate credit card business. The

company suffered from management problems in that business, recording increasingly large

reserves $($allowances$)$ to cover growing bad debts. Several years ago Sears sold its credit card

business to Citigroup, a large financial institution. $($Pratt p $246)$

What does it mean that Sears recorded $$increasingly large reserves $($allowances$)$ to cover growing

bad debts$?$ Why might Citigroup be better suited to manage receivables?

Exercise $3$

The accounts receivable footnote in Delphi Technologies$2019$ annual report provided the following

information $($dollars in millions$).$

The change in the allowance for bad debts is as follows $($Pratt p $247)$:

$ Millions

Balance at the beginning of the year $18$

Provision for bad debts $11$

Uncollected receivables written off $-5$

Balance at the end of the year $24$

Explain the meaning of this information in terms of the three steps described above.

Exercise $4$

Several years ago, Quovadx Inc., a business software company, was being investigated by the SEC.

Apparently, the company booked millions of dollars in revenue on sales made to a group of non$-$U$.$S$.$

information$-$technology companies, and over the next two years had not received any payments

from them. $($Pratt p $248)$

How do you think Quovadx should account for these facts? Explain how a reader of the financial

statements might have been able to detect such a problem.

Exercise $5$

Assume that you were hired by ABC Department Stores in $2018$ to develop and implement a new

credit policy. At the time of your hire, the average collection period for an outstanding receivable

was in excess of $90$ days $($far greater than the industry average$).$ Thus, the primary purpose of the

new policy was to better screen credit applicants in an attempt to improve the quality of the

company$$s accounts receivable. Shown as follows are sales and accounts receivable data for the past

four years $($in thousands$).$

$2021202020192018$

Sales S $34,00029,16019,20018,000$

Average accounts receivable $ $3,4003,2083,2643,600$

Based on the given data, was the credit policy you developed successful? Explain