Matthew Adair is a manager at a medium-sized company. Adair's annual bonus is based on the company's reported net income as part of a performance-based compensation structure. To increase net income and boost his bonus, he often asks the accountant to adjust statement accounts that rely on estimation such as bad debt. This year, he asked the accountant to reduce the estimate of doubtful accounts by 10%.

Questions:

Describe how the accountant should respond to Adair.

Discuss acceptable methods of accounting and reporting doubtful accounts.

Explain how the reasonableness of management's estimates and assumptions related to bad debt affect the reliability of the statements.

Answer rating: 100% (QA)

The accountant should respond to Adair by informing him that adjusting financial statements for the purpose of increasing bonuses is not ethical and v... View the full answer