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Excerpts from the 2014 financial statements of Finley Ltd., a service company, follow: Fees earned $240,000 Accounts receivable 68,000 Allowance for doubtful accounts 3,400 Total

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Excerpts from the 2014 financial statements of Finley Ltd., a service company, follow: Fees earned $240,000 Accounts receivable 68,000 Allowance for doubtful accounts 3,400 Total current assets 105,000 SS Total current liabilities 65,000 Net income 15,000 - Dividends declared 5,000 Bad debt expense 3,400 Auditors from Price and Company reviewed the financial records of Finley and found that a credit sale of $10,000 (for services rendered), which was included in the fees earned amount above, should not have been recognized until January 20, 2015. The auditors also noted that a more reasonable estimate of future bad debts would be 10 percent of the accounts receivable balance. The auditors have informed Finley's manage- ment that the audit opinion will be qualified if Finley does not adjust the financial statements accordingly. REQUIRED: a. Compute the effect of the auditors' recommended adjustment on the 2014 fees earned, accounts receiv- able, allowance for doubtful accounts, current ratio, working capital, and net income reported by Finley 0. Assume that Finley has a loan agreement with a bank, requiring it to maintain a current ratio of 13 and limiting its annual dividend payment to 50 percent of net income. How might these restrictions have influenced the reporting decisions of Finley's managers

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