Question #23
Reading: Reading 13 Integration of Financial Statement Analysis Techniques
PDF File: Reading 13 Integration of Financial Statement Analysis Techniques.pdf
Page: 13
Status: Correct
Correct Answer: A
Question
Recently, Galaxy Corporation lowered its allowance for doubtful accounts by reducing bad debt expense from 2 percent of sales to 1 percent of sales. Ignoring taxes, what are the immediate effects on Galaxy's operating income and operating cash flow? Operating income Operating cash flow
Answer Choices:
A. Lower Lower
B. No effect Higher
C. Higher No effect
Explanation
Lower bad debt expense will result in higher operating income. Operating cash flow is not
affected until Galaxy actually collects the receivables.