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Aranda Company reported the following ratio information in 2019 and 2020. ...

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Accounting

Aranda Company reported the following ratio information in 2019 and 2020.

2019 2020
Bad Debt Expense/Sales 2% 3%

Allowance for Doubtful Accounts/Gross Accounts Receivable

 7%

8%

Which of the following statements are potentially true?

1. Aranda is intentionally reducing earnings in 2020 through their reserve account, which could lead to higher earnings in a future period.

2. Aranda is intentionally increasing earnings in 2020 through their reserve account, which could lead to lower earnings in a future period.

3. Aranda is experiencing increasing credit risk of their customer base in 2020.

4. Aranda is experience decreasing credit risk of their customer base in 2020.

Group of answer choices

1 only

1 and 3

4 only

3 only

2 and 4

2 only

Answer & Explanation Solved by verified expert
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