Changes without any corresponding economic changes

Reference no: EM1344098

1. Many firms recognize revenues at the point of shipment. This provides an incentive to accelerate revenues by shipping goods at the end of the quarter. Consider two companies, one of which ships its product evenly throughout the quarter, and the second of which ships all its products in the last two weeks of the quarter. Each company's customers pay thirty days after receiving shipment. Using accounting ratios, how can you distinguish these companies?

2. a. If management reports truthfully, what economic events are likely to prompt the following accounting changes?

Increase in the estimated life of depreciable assets

Decrease in the uncollectibles allowance as a percentage of gross receivables

Recognition of revenues at the point of delivery, rather than at the point cash is received

Capitalization of a higher proportion of software R&D costs

b. Explain what features of accounting, if any, would make it costly for dishonest managers to make the same changes without any corresponding economic changes?

Reference no: EM1344098

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