The CFO of Last Things Computing, Inc. (LTC) prepared the following balance sheet and statement of net income for the current year ended December 31.

LTC had 15,000 common shares outstanding for the entire year. It had no preferred stock or dilutive securities. Assume that LTC records income tax expense at 35% of income from continuing operations before income taxes.

The CFO will make the following adjustments before finalizing the financial statements.

1. LTC needs to record some amount of bad debt expense. The offset will be a reduction in accounts receivable. This adjustment is a matter of judgment; reasonable estimates range between $1,000 and $3,000.
2. LTC needs to write down its inventory (i.e., reduce the reported value of inventory). The offset will be to cost of goods sold. This adjustment is a matter of judgment; reasonable estimates range between $2,500 and $3,750.
3. LTC could need to impair its PPE (that is, reduce the reported value of PPE). The offset will be an impairment loss reported on the statement of net income. This adjustment is a matter of judgment and reasonable estimates range between $0 and $5,000.
4. LTC could need to impair its noncurrent investments by reducing the reported value of noncurrent investments. The offset will be an impairment loss reported on the statement of net income. This adjustment is a matter of judgment; reasonable estimates range between $250 and $750.
5. LTC could need to record a litigation contingency by recording a liability for an unresolved lawsuit. The offset is to litigation expense. The lawsuit is expected to be settled in the following year. Reasonable estimates of the amount that LTC could be liable for are $2,000 or $10,000.
6. LTC could need to reduce the reported amount of its deferred tax asset. The amount by which the asset needs to be reduced is highly judgmental and ranges from $0 to $5,000. The offset to this adjustment is income tax expense.
7. LTC currently has unearned revenue on its balance sheet of $5,400. However, up to $5,000 of this amount could possibly be recognized as revenue in the current year. The amount is a matter of judgment.

Required:

1. If LTC 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 absolute dollar impact and percentage change? What is the impact on net income and earnings per share?
2. If LTC 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 absolute dollar impact and percentage change? What is the impact on net income and earnings per share?
3. What is the impact on the current ratio of these choices if management makes the most conservative choices? What is the impact on this ratio if management makes the least conservative choices?
4. Do you think that the management of LTC will care very much about the choices related to these adjustments?