EXERCISE 9–1 Interpret the effect of the following six independent events and transactions for the:

a. Accounts receivable turnover (equals 4.0 prior to the event).

b. Days’ sales in receivables.

c. Inventory turnover (equals 4.0 prior to the event).

The three columns to the right of each event and transaction are identified as (a), (b), and

(c) corresponding to the three liquidity measures. For each event and transaction indicate the effect as an increase (I); decrease (D); or no effect (NE).

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Events and Transactions (a) (b) (c) 1. $5,000 of accounts receivable are written off by a charge to allowance for doubtful accounts. 2. Beginning inventory understatement of $1,000 is corrected this period. 3. Under the lower-of-cost-or-market method, inventory is reduced to market by $2,000. 4. Obsolete inventory of $3,000 is identified and written off. 5. Beginning inventory overstatement of $2,000 is corrected this period. 6. Sales on account are overstated by $10,000 and corrected this period.