Several of Kimper Corporation’s major customers experienced cash flow problems in 2020, mainly due to their increasing labour and production costs in 2019 and 2020. As a result, Kimper’s turnover ratio (net sales revenue/average trade receivables [net]) decreased significantly in 2020. However, Kimper believes that its customers’ cash flow problems are temporary. In estimating uncollectible as at December 31, 2020, Kimper decreased the estimated percentage of its outstanding that will become uncollectible. (A lower percentage was applied in 2020 than was applied in the previous five years.) Kimper’s bad debt expense as a percentage of sales for the year ended December 31, 2020, 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 Kimper
(b) Show whether the earnings reported by Kimper will be discounted in the capital markets.
