The following information was taken from the annual report of Busytown Industries:

a. Compute Busytown€™s conservatism ratio, and comment on how conservative the company€™s reporting methods are.
b. Explain why the conservatism ratio provides a measure of the extent to which a company€™s financial accounting methods are conservative, and provide examples of accounting treatments that may increase or decrease the ratio.

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2017 2016 BALANCE SHEET $ 9,700 $8,300 Deferred income tax INCOME STATEMENT $ 68,000 Income before taxes Income tax expense (20,400) $47,600 Net income Effective income tax rate: 38%