An increase in the target firm's reserves for doubtful accounts increases taxable income,while a
decrease reduces the firm's taxable income.

Question

Quizplus · Accepted Answer

An increase in reserves for doubtful accounts represents an expense for the target firm and thus reduces taxable income. A decrease in reserves, on the other hand, would increase taxable income. Therefore, the statement in the question is incorrect.

An Increase in the Target Firm's Reserves for Doubtful Accounts