Hummel Inc

Multiple Choice

Hummel Inc. and Nadia Co. have experienced identical economic performances for the last several years of growing sales. Each uses identical accounting measurement rules except that Hummel uses the allowance method and Nadia uses the direct write-off method of accounting for bad debts. Both companies have experienced a gradual increase in uncollectible accounts. Which one of the following statements is true in the first year of operations for both companies?

A) Hummel 's net income is less than Nadia's net income.
B) Hummel 's net income is greater than Nadia's net income.
C) Hummel 's current ratio is greater than Nadia's current ratio.
D) Hummel will appear more solvent than Nadia will.