The manager asks you to assist her with the data analytics on bad debts expense at year-end. To do this, you access the following Tableau Dashboard for your company.
1. Estimate the balance of the Allowance for Doubtful Accounts using aging of accounts receivable. Assume a $0 existing balance in Allowance for Doubtful Accounts.
2. Make the adjusting entry to record Bad Debts Expense assuming the unadjusted balance in the Allowance for Doubtful Accounts is a $2,500 credit and use of the aging of accounts receivables method.
3. Make the adjusting entry to record Bad Debts Expense assuming the unadjusted balance in the Allowance for Doubtful Accounts is an $4,000 debit and use of the aging of accounts receivables method.
4. Based on further analysis, assume we find that the percentages in the graphic “Percent Uncollectible by Age” are too high. When alerting the manager, she responds that this is intentional. What are the income statement impacts from the overstated percentages?
a) Overstated expenses and understated net income.
b) Understated expenses and overstated net income.
c) No impact on expenses or net income.