The statements in the vignette speak to the fact that the allowance for doubtful accounts was REDUCED by 150MM, which would lead to higher net sales, and higher operating income, correct? The reason B is the answer (hooray for guessing) is because you have to reverse the reduction because of the worsening economic climate, correct? How often are we supposed to second guess the balance sheet adjustment items like this?
Because they give some hint in the vignette (if memory serves) to the effect of “the economic climate is worsening, customers are paying less, etc, etc”, and then tell you that the company’s reduced their allowance for doubtful accounts. Those two points don’t jive with each other unless the company’s cooking the books in some way or they have the best customers in the world.
Makes sense, I don’t recall seeing a statement that contradicted itself like that before. I’ll have to keep an eye out. Thx.