https://www.sec.gov/Archives/edgar/data/0001022079/000102207918000038/0001022079-18-000038-index.htm

Use financial statements of Quest Diagnostics in fiscal year 2017 and answer the following questions:

Discretion: how much Bad Debt Expense (BDE) to record?

Under GAAP, Quest has discretion regarding the amount of bad debt expense to record each year, as long as the resulting financial statements fairly present in all material respects the company's financial position and results of operations to readers of the statements

Consider the following two options for Quest in 2018, assuming sales, receivables and expenses similar to those in 2017. Case (i): Record Bad Debt Expense of $315m as in 2017. Case (ii): Record Bad Debt Expense of only $115m (bias their recorded expense down)

What will be the 2018 operating income for these two options?

What inferences might readers of the financial statements draw from the case (ii) operating income numbers relative to 2017? Why might a company consider case (ii)? Why not?

Revenue Recognition

When/how does Quest recognize its revenue? Do you see any potential risk associated with this process?

Hint: two practice questions can be found in Practice Questions - Revenue Recognition and Accounts Receivable