The Operational Lag Seemingly Did Not Apply in the Case

question 44

Multiple Choice

The operational lag seemingly did not apply in the case of the 2003 tax cut because it took

• A)several months in 2003 for Congress to agree on a tax cut package even after they had agreed on having one.
• B)only a month or two from the passage of the 2003 tax cut to the issuance to rebate checks.
• C)until Fall 2001 to recognize that the recession of 2001 had started January 2001.
• D)until Summer 2003 to recognize that the recession of 2001 ended in December of 2001.

Recognize the expense recognition principle as it applies to bad debts and compare the direct write-off and allowance methods.

Analyze and interpret accounts receivable turnover to assess company performance.

Calculate accounts receivable turnover and understand its implication on company liquidity.

Understand the financial impact of writing off bad debts using the direct write-off method on net income and total assets.

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Definitions:

Asset Turnover Ratio

A financial metric that measures the efficiency of a company using its assets to generate sales or revenue.

Earnings Per Share

A financial ratio indicating the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of the company's profitability.

Net Income

is the profit a company makes after deducting all costs and expenses from its total revenue, including taxes and interest.

Interest Expense

The cost incurred by an entity for borrowed funds, which can include payments on loans, bonds, or lines of credit.