A Company Uses the Percentage of Sales Method to Estimate

A company uses the percentage of sales method to estimate bad debt expense. Its tax rate is 30%. After issuing its 2009 financial statements, the firm discovered that it failed to write off $50,000 in receivables that were determined to be uncollectible in 2009. As a result of this error, net income was:

A) Overstated by $35,000.
B) Overstated by an undetermined amount.
C) Understated by an undetermined amount.
D) Unaffected.The actual write-off of receivables has no effect on net income when the allowance method is used.Because bad debt expense was based on sales, net income will not be affected by correcting the error.