Which Statement Is Correct About Recording an Allowance for Doubtful

question 85

Multiple Choice

Which statement is correct about recording an allowance for doubtful accounts?

• A)Accounts receivable are not adjusted for known uncollectable amounts.
• B)Net accounts receivable is recalculated when there are changes recorded in the Allowance for Doubtful Accounts contra account.
• C)Comparability is the reason an allowance for doubtful accounts is needed.
• D)An allowance for doubtful accounts does not require estimates or judgments.

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Definitions:

Consolidated Financial Statements

Financial statements that present the assets, liabilities, and operating results of a parent company and its subsidiaries as one entity, providing a complete picture of the financial health of the entire corporate group.

Long-term Investments

Investments that a company intends to hold for more than one year, including stocks, bonds, real estate, and other securities.

Fair Value

An estimate of the price at which an asset would trade in a fair transaction between market participants at the measurement date.

Trading Securities Portfolio

A collection of stocks, bonds, or other securities that a company holds for the primary purpose of selling them in the short term to profit from price changes.