A company’s Financial statement reads: Current $2k Fixed assets 3K Debt 3k Equity 2K The company sold $500 in receivables, but a review of the footnotes to the Fin. statement reveals the credit risk was not transferred on the sale. Which of the following adjustments is an analyst reviewing the company least likely to make? A: decrease equity $500 B: increase debt by $500 C: increase current assets by $500 D: decrease cash flow from ops. but increase cash flow from financing.
We are being asked Least LIKELY here. credit risk from sale of receivables was not transferred on sale. So actual receivables would be higher by 500$ Since receivables increased - CFO from ops would reduce, so D is correct. Current Assets would increase by 500$ --> C is correct. Increase Debt by 500$ would match A=L+E --> B is correct. Equity would increase to match A=L+E by 500$ – but question says Equity is reduced. Is my reasoning correct? So A.
Receivables has been sold - now there is a liability to buyer of the receivables if they fail to collect (credit risk). debt is increased by $500
kps - pls read the question - it is asking LEAST LIKELY… .
Yep A it is. Thanks