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:

Vertical Equity

A principle of taxation that suggests taxpayers with a higher ability to pay should contribute more in taxes than those with a lesser ability to pay.

Horizontal Equity

The principle that individuals with equal ability to pay should face equal tax burdens.

Marginal Tax Rates

The tax rate that applies to the next dollar of taxable income.

Vertical Equity

A principle in taxation that suggests taxpayers with a greater ability to pay should contribute more in taxes.