The Direct Write-Off Method Is Generally Not Permitted for Financial

question 62

Multiple Choice

The direct write-off method is generally not permitted for financial reporting purposes because:

• A)Compared to the allowance method,it would allow greater flexibility to managers in manipulating reported net income.
• B)This method is primarily used for tax purposes.
• C)It is too difficult to accurately estimate future bad debts.
• D)Expenses (bad debts)are not properly matched with the revenues (credit sales)that they help to generate.

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Definitions:

Zero-Coupon Bond

A type of debt security that does not pay interest (coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, including all interest payments and the repayment of principal.

Par Value

The nominal or face value of a bond, share of stock, or other financial instrument, as stated by the issuer.

Coupon Interest Rate

The annual interest rate paid on a bond's face value by the bond's issuer, representing the interest income received by bondholders.