Several of Jae Corporation s major customers experienced cash flow problems
Several of Jae Corporation's major customers experienced cash flow problems in 2014, mainly due to their increasing labour and production costs in 2013 and 2014. As a result, Jae's accounts receivable turnover ratio (net sales
revenue/average trade receivables [net]) decreased significantly in 2014. However, Jae believes that its customers' cash flow problems are temporary. In estimating uncollectible accounts receivable as at December 31, 2014, Jae decreased the estimated percentage of its outstanding accounts receivable that will become uncollectible (a lower percentage was applied in 2014 than was applied in the previous five years). Jae\; bad debt expense as a percentage of sales for the year ended December 31, 2014, was lower than the percentage reported in the previous five years, and no additional note disclosure regarding potentially higher risk of uncollectible accounts was reported. Based only on the information above,
(a) Evaluate the quality of information provided by Jae and
(b) Indicate whether the earnings reported by Jae will be discounted in the capital markets.
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