Which Statement About Using the Percentage of Credit Sales to Estimate

question 55

Multiple Choice

Which statement about using the percentage of credit sales to estimate bad debt expense is not correct?

• A)This method has the same results as estimating the bad debt expense by aging the accounts receivable.
• B)This method records an adjustment to the allowance account irrespective of the balance in that account immediately prior to the adjustment.
• C)This method focuses on the income statement.
• D)This method only indirectly measures accounts receivable at net realizable value.

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Definitions:

Price Floor

A government or regulatory-imposed minimum price set above the equilibrium market price, aimed at ensuring that the market price of a good or service cannot fall below a certain level.

Shortage

A market condition where the demand for a product exceeds the supply at a given price, often leading to higher prices.

Surplus

A situation where the quantity of a good or service supplied exceeds the quantity demanded at the current price.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where the quantity supplied equals the quantity demanded.