The Porsha Bank has provided its auditor with the following selected financial data for 2017:
$\begin{array}{lrr}
\text { Cash } & & \$ 7,000 \
\text { Loans receivable—current } & \$ 21,000 & \
\text { Allowance for doubtful accounts } & \underline{(3,000)} & \underline{18,000} \
\text { Total current assets } & & \underline{ \$ 25,000}\
\text { Loans receivable-long-term } & \$ 36,000 \
\text { Allowance for doubtful accounts } & \underline{(4,000)} &\underline{ \$ 32,000} \
\text { Current liabilities } & & \underline{ \$ 19,000} \
2017 \text { net income } & &\underline{ \$ 30,000}
\end{array}$
In reviewing the loans outstanding, the auditors were troubled by the fact that the collectability of some loans to Brazil was questionable. In fact, Porsha Bank has been making new loans to Brazil so that they can pay the interest on the loans already outstanding. The economic situation of Brazil has forced the auditors to insist that Porsha Bank increase its allowance for its current loans to $9,000 and for its non-current loans to $16,000. Porsha Bank decided to adhere to their auditors' suggestions.
Indicate the effects of adopting the auditor's allowance requirements on Porsha Bank's current ratio and 2017 net income.

Question

The Porsha Bank has provided its auditor with the following selected financial data for 2017:
 $\begin{array}{lrr}
\text { Cash } & & \$ 7,000 \
\text { Loans receivable—current } & \$ 21,000 & \
\text { Allowance for doubtful accounts } & \underline{(3,000)} & \underline{18,000} \
\text { Total current assets } & & \underline{ \$ 25,000}\
\text { Loans receivable-long-term } & \$ 36,000 \
\text { Allowance for doubtful accounts } & \underline{(4,000)} &\underline{ \$ 32,000} \
\text { Current liabilities } & & \underline{  \$ 19,000} \
2017 \text { net income } & &\underline{ \$ 30,000}
\end{array}$ 
In reviewing the loans outstanding, the auditors were troubled by the fact that the collectability of some loans to Brazil was questionable. In fact, Porsha Bank has been making new loans to Brazil so that they can pay the interest on the loans already outstanding. The economic situation of Brazil has forced the auditors to insist that Porsha Bank increase its allowance for its current loans to $9,000 and for its non-current loans to $16,000. Porsha Bank decided to adhere to their auditors' suggestions.
Indicate the effects of adopting the auditor's allowance requirements on Porsha Bank's current ratio and 2017 net income.

Quizplus · Accepted Answer

The Answer of The Porsha Bank has provided its auditor with the following selected financial data for 2017:
 $\begin{array}{lrr}
\text { Cash } & & \$ 7,000 \
\text { Loans receivable—current } & \$ 21,000 & \
\text { Allowance for doubtful accounts } & \underline{(3,000)} & \underline{18,000} \
\text { Total current assets } & & \underline{ \$ 25,000}\
\text { Loans receivable-long-term } & \$ 36,000 \
\text { Allowance for doubtful accounts } & \underline{(4,000)} &\underline{ \$ 32,000} \
\text { Current liabilities } & & \underline{  \$ 19,000} \
2017 \text { net income } & &\underline{ \$ 30,000}
\end{array}$ 
In reviewing the loans outstanding, the auditors were troubled by the fact that the collectability of some loans to Brazil was questionable. In fact, Porsha Bank has been making new loans to Brazil so that they can pay the interest on the loans already outstanding. The economic situation of Brazil has forced the auditors to insist that Porsha Bank increase its allowance for its current loans to $9,000 and for its non-current loans to $16,000. Porsha Bank decided to adhere to their auditors' suggestions.
Indicate the effects of adopting the auditor's allowance requirements on Porsha Bank's current ratio and 2017 net income.

The Porsha Bank Has Provided Its Auditor with the Following