The following questions concern analytical proce¬ dures in the sales and collection cycle. Choose the best response.

a. As a result of analytical procedures, the independent auditor determines that the gross profit percentage has declined from 30 percent in the preceding year to 20 per¬ cent in the current year. The auditor should

(1) evaluate management's performance in causing this decline.

(2) investigate the credit manager's performance.

(3) require footnote disclosure.

(4) consider the possibility of a misstatement in the financial statements.

b. Once a public accountant has determined that accounts receivable have increased due to slow collections in a "tight money" environment, the public accountant would be likely to

(1) review the going concern ramifications.

(2) review the credit and collection policy.

(3) increase the balance in the allowance for bad debt account.

(4) expand tests of collectibility.

c. In connection with his review of key ratios, the public accountant notes that Pyzi Inc. had accounts receivable equal to 30 days' sales at December 31, 2000, and to 45 days' sales at December 31, 2001. Assuming that there had been no changes in economic conditions, clientele, or sales mix, this change most likely would indicate

(1) a steady increase in sales in 2001.

(2) a steady decrease in sales in 2001.

(3) an easing of credit policies in 2001.

(4) a decrease in accounts receivable relative to sales in 2001.

(AICPA adapted)