On October 12 of the Prior Year,a Company Determined That

question 108

Multiple Choice

On October 12 of the prior year,a company determined that a customer's account receivable was uncollectible and that the account should be written off.Unexpectedly,on March 1 of the current year,the customer paid the account in full.Assuming the direct write-off method is used to account for bad debts,what effect will this recovery have on the company's net income and total assets?

• A)Decrease in net income; no effect on total assets.
• B)No effect on net income; no effect on total assets.
• C)Decrease in net income; decrease in total assets.
• D)Increase in net income; increase in total assets.
• E)No effect on net income; decrease in total assets.

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Definitions:

Inventory Turnover Ratio

A metric that calculates the number of times inventory is sold or consumed in a given time frame, reiterating the effciency of inventory management.

Quick Ratio

Quick ratio, also known as acid-test ratio, is a liquidity metric that indicates a company's ability to cover its short-term liabilities with its most liquid assets, excluding inventory.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.

Return on Assets

A profitability ratio indicating the efficiency with which a company uses its assets to generate net income, calculated by dividing net income by total assets.