Management Uses the Percentage-Of-Sales Approach Method to Calculate the Allowance

Multiple Choice

Management uses the percentage-of-sales approach method to calculate the allowance for doubtful debts.Management calculated the allowance for doubtful debts on the basis of 2 per cent of sales.However,by year-end it was aware that the rate should have really been 3 per cent of sales.Management does not adjust the allowance for doubtful debts at year-end.As a result:

A) assets are overstated,and net profit is overstated.
B) assets are overstated,and net profit is understated.
C) assets are understated,and net profit is overstated.
D) assets are understated,and net profit is understated.