Holman Electronics manufactures audio equipment selling

it through various distributors

Holman Electronics manufactures audio equipment selling it through various distributors

Holman Electronics manufactures audio equipment, selling it through various distributors.

Holman's days sales outstanding (Accounts receivable / Average daily credit sales) figures
increased steadily in 2017 and then spiked dramatically in 2018, peaking at 120 days in the
second quarter. In the third quarter of 2018, Holman's days sales outstanding figure dropped to
90 days. Its chief financial officer engineered this drop by artificially reducing the amount of
outstanding accounts receivable. Channel partners with large outstanding receivables were
pressured into signing notes for those amounts. Once sales personnel secured the notes, the
CFO directed a reclassification entry to the general ledger converting more than $30 million in
trade receivables into notes receivable, which are not included in the days sales outstanding
calculation. This reclassification was not disclosed in the Form 10-Q that Holman filed for that
quarter.
Required:
What might be the motive for the CFO's actions? Explain your answer.

Holman Electronics manufactures audio equipment selling it through various distributors

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