Zorro Company Has Significant Amounts of Accounts Receivable,and Experiences Uncollectible

question 130

Multiple Choice

Zorro Company has significant amounts of accounts receivable,and experiences uncollectible accounts from time to time.Zorro uses the direct write-off method.When Zorro Company writes off an uncollectible receivable,what is the effect of that single transaction?

• A) It will reduce net income.
• B) It will have no effect on net income.
• C) It will increase total assets of the company.
• D) It will generate positive cash flow.

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Definitions:

Revaluation

The process of reassessing the value of assets or liabilities, leading to adjustments in their carrying amount on the balance sheet.

Consolidation Adjustment

Adjustments made to convert individual financial statements of parent and subsidiary companies into consolidated financial statements.

Contingent Liability

A potential financial obligation that may arise in the future, dependent on the outcome of a specific event.

Business Combination

A merger or acquisition in which separate companies come together to form a single entity, often to enjoy strategic advantages or to expand their market reach.