Which of the Following Statements Is False Regarding the Different

question 125

Multiple Choice

Which of the following statements is false regarding the different bases used for the allowance method?

• A) Three bases are generally accepted, the percentage of sales, the percentage of receivables, and the direct write-off.
• B) Management can choose whichever basis it prefers.
• C) If management wishes to emphasize the cash realizable value of receivables it will select the percentage of receivables basis.
• D) The company must determine its past experience with bad debt losses regardless of which basis it selects.

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Definitions:

Compounding Periods

The intervals at which interest is calculated and added to the account's balance in the context of investing or saving.

Variable-Rate Loan

A loan whose interest rate changes over the life of the loan.

Fixed-Rate Loan

A loan whose interest rate remains constant.

Floor Planning

A type of business loan generally made for “big-ticket” items. The business holds the item in inventory and pays interest, but it is actually owned by the lender until the item is sold.