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

a. Accounts receivable turnover (currently equals 3.0).

b. Days’ sales in receivables.

c. Inventory turnover (currently equals 3.0).

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 1. Beginning inventory understatement of $500 is corrected this period. 2. Sales on account are underreported by $10,000. 3. $10,000 of accounts receivable are written off by a charge to the allowance for doubtful accounts. 4. $10,000 of accounts receivable are written off by a charge to bad debts expense (direct method). 5. Under the lower-of-cost-or-market method, inventory is reduced to market by $1,000. 6. Beginning inventory overstatement of $500 is corrected this period. (a) (b) (c)