In Determining the Adequacy of the Allowance for Uncollectible Accounts

question 50

Multiple Choice

In determining the adequacy of the allowance for uncollectible accounts, the least reliance should be placed upon which of the following?

• A) The credit manager's opinion.
• B) An aging schedule of past due accounts.
• C) Collection experience of the client's collection agency.
• D) Ratios calculated showing the past relationship of accounts receivable to net credit sales.

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Definitions:

Corporate Capital Structure

The mix of debt, equity, and other securities that a company uses to finance its activities.

Diluted Earnings Per Share

A metric that calculates a company's earnings per share (EPS) if all convertible securities were converted into common stock, potentially lowering the EPS.

Convertible Debt

A type of bond or loan that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often paying fixed dividends.