Chapter 6, Problem 1JC

a.

To determine

The impact on assets and liabilities in terms of absolute dollar impact and percentage change if the company makes the most conservative choices.

Given information:

The balance sheet of the company is given, whose ending balance is $177,100. The CFO of the company must make some adjustments before finalizing the financial statements. The adjustment of bad debts will vary between $1,000 and $3,000. The adjustment of inventory will vary between $2,500 and $3,750. The adjustment of impairment loss on PPE will vary between $0 and $5,000. The adjustment of impairment loss on noncurrent investment will vary between $250 and $750. The adjustment for litigation expense will vary between $2,000 and $10,000. The adjustment of deferred tax asset will vary between $0 and $5,000. Adjustment of unearned revenue will vary between $0 and $5,000.

b.

To determine

The impact on assets and liabilities in terms of absolute dollar impact and percentage change if the company makes the least conservative choices.

c.

To determine

The impact on the current ratio and debt to equity ratio of the given adjustments in most and least conservative choices.

d.

To determine

To explain: Whether management will take care about the choices related to given adjustments.