Blue Shoes Ltd Has Gone Bankrupt and Will Not Pay

question 4

Multiple Choice

Blue Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ. XYZ has accounts receivable of $12 million and an allowance for doubtful debts of $500 000. XYZ does not adjust its accounts for the $10 000 that will not be paid by Blue Shoes Ltd. Which of the following remarks is true about the financial statements?

• A) There is an understatement of net profit.
• B) There is an overstatement of total assets and net profit.
• C) There is an understatement of total assets and net profit.
• D) There is no effect on total liabilities, assets or net profit.

---

Definitions:

Articles Of Incorporation

Document filed with a state government to legally document the creation of a corporation, outlining key details such as name, purpose, and structure.

Incorporation Document

Official papers filed with a state to legally document the creation of a corporation.

Corporate Charter

A legal document establishing a corporation, outlining its structure, and defining its rights and duties.

Corporate Board

A group of individuals elected by shareholders to oversee and make decisions on behalf of a corporation.