Digital Corporation
the Following Data Concern Digital Corporation for 2012

question 40

Multiple Choice

Digital Corporation
The following data concern Digital Corporation for 2012.
$\begin{array}{ll}\text { Credit sales during the year } & \$ 2,400,000 \\\text { Accounts receivable--December } 31,2012 & 410,000 \\\text { Allowance for bad debts--December } 31,2012 & 55,000 \\\text { Bad debt expense for the vear } & 35,000\end{array}$
-Refer to the information provided for Digital Corporation. What are the effects on the accounting equation when Digital writes off a bad debt under the allowance method?

• A) Assets decrease and equity increase
• B) Assets and equity decrease
• C) Assets increase and equity decreases
• D) No effect on overall assets or equity

---

Definitions:

Equity Investments

Investments in stock or equity interests in entities, representing ownership interest.

Adjusted Trial Balance

A list of all the accounts and their balances after adjusting entries have been made, used to prepare financial statements.

External Reporting

The process of providing financial statement information to external stakeholders such as investors, creditors, and regulatory agencies.

Statement of Income

A financial document that shows a company's revenues, expenses, and profits or losses over a specific period of time.