For a Company with Significant Uncollectible Receivables, the Direct Write-Off

question 111

Multiple Choice

For a company with significant uncollectible receivables, the direct write-off method is unsuitable because:

• A)it overstates liabilities on the balance sheet.
• B)it violates the matching principle.
• C)direct write-offs would be immaterial.
• D)it is not allowed for tax reasons.

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Definitions:

Liquidity

The ease with which an asset can be converted into cash without significantly affecting its market price.

Market Price

The selling price of goods or services in the open market at which buyers and sellers agree.

New Equity Issue

The process of offering new shares by a company to the public or existing shareholders to raise capital.

Issue Costs

Expenses associated with the issuing of new securities, including underwriting, legal, and registration fees.