Question Completion:
Anton Blair is the manager of a medium-size company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountant for year-end adjustments. One of his favorite recommendations is for the controller to reduce the estimate of doubtful accounts.
Answer:
The effect of lowering the estimate for the allowance for doubtful accounts on the net income of the company is the increased net income resulting from reduced bad debt expense.
The effect of lowering the estimate for the allowance for doubtful accounts on Blair's bonus is the increased bonus since his bonus is based on the increased net income.
Explanation:
Blair's practice is unethical and selfish. The accountant should never comply with such directive as it does not protect the interests of the stockholders. Rather, she should explain the implications of such practice clearly to Blair.