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# Growth Rate

Blue, inc. sells playground equipment to schools and municipalities. Invoices are mailed at the end of each month for all goods shipped during that month; credit terms are net 30 days. Sales and account receivable data for 2005, 2006, and 2007 were as follows.

Year ending December 31 2005 2006 2007
sales \$1,785,980 \$1,839,559 \$1,986,724
Accounts receivable at year-end 220,189 227,896 267,094

Required:

1. Calculate the growth rates in sales and receivables during 2006 and 2007.

2. Do your calculations indicate any potential problems with interworld's receivables?

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

#### Solution Preview

1. Calculate the growth rates in sales and receivables during 2006 and 2007.

The growth rate is given as (year 2 - year 1)/Year 1
Growth Rate in Sales
2006 - (1,839,559-1,785,980)/1,785,980 = 3%
2007 - (1,986,724-1,839,559)/1,839,559=8%

Growth Rate in receivables
2006 - (227,896-220,189)/220,189 = 3.5%
2007 - (267,094-227,896)/227,896=17.2%

2. Do your calculations indicate any potential problems with interworld's ...

#### Solution Summary

The solution explains how to calculate the growth rate in sales and receivables and the indication of any potential problem

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