The following quote was taken from the 2009 annual report of Hewlett-Packard.

HP sells a significant portion of its products through third-party distributors and resellers and, as a result, maintains individually significant receivable balances with these parties.

If the financial condition or operations of these distributors and resellers deteriorates substantially, HP’s operating results could be adversely affected. The ten largest distributor and reseller receivable balance collectively, which were concentrated primarily in North America, represented approximately 22% of gross accounts receivable at October 31, 2009 and 18% at October 31, 2008. No single customer accounts for more than 10% of accounts receivable.

REQUIRED:

a. Why would an investor or other user of HP’s financial statements be concerned that certain individual customers represent a large portion of the receivables balance?

b. If problems arose with some of these customers, explain how it might affect HP’s financial statements.