When Sellers Are Unable to Distinguish "Good" Buyers from "Bad

question 144

Multiple Choice

When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of

• A) moral hazard.
• B) adverse selection.
• C) externalities.
• D) diminishing utility.

---

Definitions:

Bad Debt Expense

An expense account representing the estimated uncollectible accounts receivable.

Direct Write-off Method

An accounting method where bad debts are expensed only when specific accounts are deemed uncollectible and written off.

Uncollectible Accounts Expense

Uncollectible accounts expense is the cost associated with receivables that a company does not expect to collect, impacting the net income and accurate representation of receivables.

Allowance Method

An accounting technique used to estimate and account for bad debts or credit losses.