Final answer:
The true statement about a company that uses the allowance method is that it shows the net realizable value of its accounts receivable on the balance sheet. Also, a bank's assets, including cash and loans, may not all be present in bank vaults, as most are loaned out or invested. A bank or financial services company might alter the price it pays for loans on the secondary market based on the borrower's credit history and changes in interest rates.
Step-by-step explanation:
When it comes to the allowance method for accounting for uncollectible accounts, statement 1) The net realizable value of its accounts receivable is shown on the balance sheet is a true statement. Under this method, bad debts expense is estimated and recorded in advance of write-offs through an adjusting entry to better match revenues with expenses. Whereas, the write-off of an uncollectible account directly reduces the allowance for doubtful accounts.
Now, turning to the bank's balance sheet, the money listed as assets may not actually be physically present in the bank because banks operate on a fractional reserve system, meaning they keep only a fraction of their deposits on hand as reserves. Most of the funds are lent out or invested, which are also considered assets since they represent a future inflow of cash.
In terms of buying loans in the secondary market, a financial services company might pay more for a loan if the borrower has just declared high profits as it suggests greater ability to repay. Conversely, they might pay less if the borrower has a history of late payments, suggesting higher risk. Changes in the economy's overall interest rates can also affect the price, as existing loans might become more or less attractive compared to new loans issued at current market rates.