If a company attempts to artificially inflate current sales and net income by shipping goods that have not been ordered,we would expect that the receivables turnover ratio will:
A)increase and the days-to-collect will increase,all other things being equal.
B)increase and the days-to-collect will decrease,all other things being equal.
C)decrease and the days-to-collect will decrease,all other things being equal.
D)decrease and the days-to-collect will increase,all other things being equal.

Question

Quizplus · Accepted Answer

If a company ships goods that have not been ordered, it will inflate its sales and net income, which will result in an increase in the receivables turnover ratio. However, since the goods have not been ordered, customers may take longer to pay, causing an increase in days-to-collect, which will result in a decrease in the receivables turnover ratio. Therefore, we would expect the receivables turnover ratio to decrease and the days-to-collect to increase, making D the correct choice.

If a Company Attempts to Artificially Inflate Current Sales and Net