Accounting Analysis Essay Example
1.When a specific account receivable is written off, the entry A) increases net income.
B) decreases net income.
C) can either decrease or increase net income.
D) has no effect on net income.2.Echo Company's 2011 beginning and ending accounts receivable balances were $72,500 and $41,250 respectively. During 2011, the company's sales (all on credit) amounted to $857,250. Per Echo's 2011 cash flow statement, $873,500 was collected from customers while $18,750 related to uncollectible accounts was listed among the "non-cash expenses." If Echo's beginning balance in the allowance for uncollectibles was , the ending balance in this account must be A) $15,000
B) 21,350
C) $36,350
D) $17,6003.An analyst notes that ABC Inc.'s allowance for uncollectible accounts as a percentage of year-end accounts receivable has changed. Which of the following would be a plausible explanation for the change? A) ABC's management expects a default rate on outstanding receivables different than that which has occurred in prior years.
B) ABC's management is using bad debt accruals to "manage" earnings.
C) The company ages its receivables and the distribution of accounts receivable over the various age categories is different than in prior years.
D) All of the above are plausible reasons for the noted change.4.Research evidence suggests that A) companies increase bad debt expense when earnings are otherwise low and then decrease the expense when earnings are high.
B) companies reduce bad debt expense when earnings are otherwise low and then increase the expense when earnings are high.
C) there is no correlation between bad debt expense and earnings levels.
D) a company's ratio of allowance for uncollectibles to gross receivables should always be close to the average for its industry.5.XYZ Co.'s 2012 ratio of allowance for uncollectibles to gross receivables has declined from the ratio at the end of 2011. To evaluate whether the reduction in XYZ's ratio is reasonable, an analyst
B) decreases net income.
C) can either decrease or increase net income.
D) has no effect on net income.2.Echo Company's 2011 beginning and ending accounts receivable balances were $72,500 and $41,250 respectively. During 2011, the company's sales (all on credit) amounted to $857,250. Per Echo's 2011 cash flow statement, $873,500 was collected from customers while $18,750 related to uncollectible accounts was listed among the "non-cash expenses." If Echo's beginning balance in the allowance for uncollectibles was , the ending balance in this account must be A) $15,000
B) 21,350
C) $36,350
D) $17,6003.An analyst notes that ABC Inc.'s allowance for uncollectible accounts as a percentage of year-end accounts receivable has changed. Which of the following would be a plausible explanation for the change? A) ABC's management expects a default rate on outstanding receivables different than that which has occurred in prior years.
B) ABC's management is using bad debt accruals to "manage" earnings.
C) The company ages its receivables and the distribution of accounts receivable over the various age categories is different than in prior years.
D) All of the above are plausible reasons for the noted change.4.Research evidence suggests that A) companies increase bad debt expense when earnings are otherwise low and then decrease the expense when earnings are high.
B) companies reduce bad debt expense when earnings are otherwise low and then increase the expense when earnings are high.
C) there is no correlation between bad debt expense and earnings levels.
D) a company's ratio of allowance for uncollectibles to gross receivables should always be close to the average for its industry.5.XYZ Co.'s 2012 ratio of allowance for uncollectibles to gross receivables has declined from the ratio at the end of 2011. To evaluate whether the reduction in XYZ's ratio is reasonable, an analyst