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

question 72

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) it uses estimates for determining the bad debt expense
• D) companies are not able to track customer payment histories

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Definitions:

Retained Earnings

The portion of net earnings not distributed as dividends to shareholders but retained by the company for reinvestment.

Noncumulative Preferred Shares

Type of preferred stock where dividends not paid in a particular year do not accumulate and must be forfeited.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares.

Shareholders' Equity

Shareholders' equity represents the residual interest in the assets of a corporation after deducting its liabilities, indicating the ownership interest of the shareholders.