Question

At the end of year 1, Vastrom Company's bad debt allowance was 20%. By the end of year 2, that percentage was 27%. Which one of the following statements is true with respect to creditworthiness?

a. Creditworthiness improved
b. Creditworthiness remained the same
c. Creditworthiness worsened
d. Not enough information to determine

Answer 1

Additional information is needed to determine the creditworthiness of Vastrom Company. Hence, d) is correct.

Step-by-step explanation:

The answer to this question is not provided directly in the given information. In order to determine whether the creditworthiness of Vastrom Company improved, remained the same, or worsened, we would need additional information about the composition of the bad debt allowance. If the bad debts actually increased from year 1 to year 2, then it is likely that creditworthiness worsened.

Conversely, if the bad debts decreased, then creditworthiness would have improved. Without knowing the actual bad debts numbers, we cannot determine the creditworthiness of the company based solely on the given percentage of the bad debt allowance.