Major League Products provides merchandise carrying the logos of each fans favorite major league team. In recent years, the company has struggled to compete against new Internet-based companies selling products at much lower prices. Andrew Ransom, in his second year out of college, was assigned to audit the financial statements of Major League Products. One of the steps in the auditing process is to examine the nature of year-end adjustments. Andrews investigation reveals that the company has made several year-end adjustments, including (a) a decrease in the allowance for uncollectible accounts, (b) a reversal in the previous write-down of inventory, (c) an increase in the estimated useful life used to calculate depreciation expense, and (d) a decrease in the liability reported for litigation.

Major League Products provides merchandise carrying the logos of each fan's favorite major league team. In recent years, the company has struggled to compete against new Internet-based companies selling products at much lower prices. Andrew Ransom, in his second year out of college, was assigned to audit the financial statements of Major League Products. One of the steps in the auditing process is to examine the nature of year-end adjustments. Andrew's investigation reveals that the company has made several year-end adjustments, including (a) a decrease in the allowance for uncollectible accounts, (b) a reversal in the previous write-down of inventory, (c) an increase in the estimated useful life used to calculate depreciation expense, and (d) a decrease in the liability reported for litigation Required: 1. Classify each adjustment as conservative or aggressive. (a) A decrease in the allowance for uncollectible accounts (b) Areversal in the previous write-down of inventory (c) An increase in the estimated useful life used to calculate depreciation expense (d) A decrease in the liability reported for litigation 2. What effect do these adjustments have on expenses in the current year? Increase Decrease None 3. What effect do these adjustments have on the company's cash balance in the current year? Increase Decrease ONone 4. Do these year-end adjustments, taken together, raise concerns about earnings management? Yes No