Assume the following balance sheet: PARTHENON, INC Balance Sheet As of December 31, 2016 Assets Current Assets: Cash $5,000 Trading Securities at Fair Value 700 Accounts Receivable - net 11,000 Merchandise Inventory 24,000 Office Supplies 600 Prepaid Rent 200 Total Current Assets 41,500 Noncurrent Assets: Investments $15,000 Property, Plant, and Equipment Land 20,000 Buildings 80,000 Machinery and Equipment 70,000 Less: Accumulated Depreciation -62,000 Total Property, Plant, and Equipment - net 108,000 Deferred Tax Asset 5,000 Intangilble Assets: Franchise - net 4,500 Other Assets 3,100 Total Noncurrent Assets $135,600 Total Assets $177,100 Liabilities Current Liabilities: Accounts Payable $2,700 Short-term Notes Payable 1,000 Current Portion of Long-term Debt 300 Interest Payable 200 Income Taxes Payable 1,500 Unearned Revenue 5,400 Total Current Liabilities 11,100 Noncurrent Liabilities: Notes Payable, due 10 fears $40,000 Bonds Payable, due 20 years 60,000 Total Noncurrent Liabilities 100,000 Total Liabilities $111,100 Stockholders' Equity Common Stock - at par $20,000 Additional Paid-in Capital 30,000 Retained Earnings 5,000 Accumulated Other Comprehensive Income 11,000 Total Stockholders' Equity $66,000 Total Liabilities and Stockholders' Equity $177,100 Assume that Parthenon does not incur income tax expense. Therefore, we can calculate the impact in equity as the combination of the impact on assets and the impact on the liabilities. The following are the adjustments you must make before finalizing the financial statements: 1. Parthenon will need to record some bad debt expense. This implies that there will be a reduction in its accounts receivable. Assume this is a judgment call and estimates range between $1,000 and $3,000. 2. Parthenon will go through some write down of its inventory. The corresponding account is to the cost of goods sold. Assume this is a judgment call and estimates range between $2,500 and $3,750. 3. Parthenon will also need to record an impairment loss on its long-term assets (which will reduce the reported value of PPE). The corresponding account is an impairment loss reported on the statement of net income. Assume this is a judgment call and estimates range between $0 and $5,000. 4. Parthenon will also need to record an impairment loss on its long-term investments. This means that there will be an impairment loss reported on its income statement. Once again, assume this is a judgment call and estimates range between $250 and $750. 5. Parthenon may need to record a litigation contingency (i.e., it may need to record a liability for an unresolved lawsuit). The corresponding account is litigation expense. Parthenon expects to settle this lawsuit in 2017. Right now, the amount that Parthenon may be liable for is ranging from $2,000 to $10,000. 6. Parthenon may also need to shave off some of its long-term deferred tax asset. Assume this is a judgment call and estimates range between $0 to $5,000. The corresponding account is income tax expense. 7. Lastly, Parthenon has unearned revenue on its balance sheet of $5,400 of which about $5,000 could possibly be recognized as revenue in 2016. Once again, this is another judgment call! Required: 1. If the Parthenon management makes the most conservative choices for all these adjustments that will result in the lowest net income number, what is the impact on assets and liabilities in terms of a) the absolute dollar impact? b) the percentage impact? 2. If the management makes the least conservative choices for all these adjustments that will result in the highest net income number, what is the impact on assets and liabilities in terms of a) the absolute dollar impact? b) the percentage impact? 3. The impact on the current ratio and the debt-to-equity ratio of these choices if Parthenon makes the most conservative choices? The impact on these ratios if Parthenon makes the least conservative choices? 4. In what ways, do you think that the management of Parthenon will care about the choices related to these adjustments?