Describes the effects of the understatement

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Problem 1: Assume NO taxes. At the end of Y3, ACo has gross receivables of $300 and allowance for bad debts of $20. Its allowance is understated. It should have been $30. Which one of the following statements best describes the effects of this understatement?

a. Retained earnings and cash balance at the end of Y3 have been overstated by $30.
b. Retained earnings and cash balance at the end of Y3 have been overstated by $10.
c. Retained earnings at the end of Y3 have been overstated by $30, but there has been no overstatement of cash balance at the end of Y3.
d. Retained earnings at the end of Y3 have been overstated by $10, but there has been no overstatement of cash balance at the end of Y3.

Reference no: EM132976714

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