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

question 2

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.

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Definitions:

Cannon-Bard Theory

A theory of emotion that proposes that emotions and bodily changes occur simultaneously following a stimulating event, contrary to the sequential theory proposed by James-Lange.

James-Lange Theory

A hypothesis that suggests emotions occur as a result of physiological responses to external events.

Autonomic Arousal

The activation or response of the autonomic nervous system to stimuli, resulting in physiological changes like heart rate, sweating, and blood pressure alterations, often associated with emotions or stress.

Subcortical Areas

Regions of the brain located below the cerebral cortex, involved in various functions including movement, sensory processing, and emotion regulation.