Gloria CPA, an auditor for Smart Move, Inc., observed changes in certain Year 2 financial ratios or amounts from the Year 1 ratios or amounts. For each observed change, answer the following questions regarding possible explanations. (Assume that the turnover ratios were calculated using year-end balances.)

Inventory turnover decreased substantially from the prior year. Which of the following is a possible explanation for this finding?

- Items shipped FOB shipping point during December, Year 2 were included in Year 3 sales.

- Items shipped on consignment during the last month of the year were recorded as sales.

- A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.

- Year-end purchases of inventory were understated by incorrectly excluding items received before the year-end

Accounts receivable turnover decreased substantially from the prior year. Which of the following is not a possible explanation for this finding?

- Items shipped on consignment during the last month of the year were recorded as sales

- A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded

- A larger percentage of sales occurred during the last month of the year, as compared to the prior year.

- Sales increased at a lower percentage than cost of goods sold increased, as compared to the prior year.

Allowance for doubtful accounts increased from the prior year, but allowance for doubtfull accounts as a percentage of accounts receivable decreased from the prior year. Which of the following is not a possible explanation for this finding?

- Items shipped on consignment during the last month of the year were recorded as sales

- A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.

- A larger percentage of sales occurred during the last month of the year, as compared to the prior year.

- Sales increased at a greater percentage than cost of goods sold increased, as compared to the prior year

Long-term debt increased from the prior year, but interest expense increased a larger than proportionate amount than long-term debt. Which of the following is a possible explanation for this finding?

- A significant amount of long-term debt was paid off during the current year

- Long-term borrowing was refinanced on a short-term basis at a lower interest rates

- Short-term borrowing was refinanced on a long-term basis at lower interest rates

- Short-term borrowing was refinanced on a long-term basis at higher interest rates.

Operating income increased from the prior year although the entity was less profitable than in the prior year. Which of the following is not a possible explanation for this finding?

- Interest rates were higher during the current year than they were in the prior year

- Sales increased at a greater percentage than cost of goods sold increased, as compared to the prior year

- The effective income tax rate increased, as compared to the prior year.

- Short-term borrowing was refinanced on a long-term basis at higher interest rates

Gross margin percentage was unchanged from the prior year although gross margin increased from the prior year. Which of the following is a possible explanation for this finding?

- Selling, general, and administrative expenses increased at a greater percentage than cost of goods sold increased, as compared to the prior year.

- The same percentage of sales occurred during the last month of the year, as compared to the prior year

- Sales increased at the same percentage as cost of goods sold, as compared to the prior year

- The increase in operating income during the current year was partially offset by the increase in non-operating expenses.