Answer:
B. stockholder's equity to decrease
Explanation:
The adjusting entry for allowance for doubtful accounts is as follows,
Bad Debts A/C Dr.
To Allowance for Doubtful Accounts
(Being estimated bad debts provided for now recorded)
The effect of the above journal entry would be as follows:
1. Bad debts is an income statement account. So creation of bad debts would reduce the net income. Owing to such reduction in the net income, the stockholder's equity shall decrease since profits belong to shareholders and owners.
2. Allowance for Doubtful Accounts is a kind of provision reported in the balance sheet. This represents a liability account.
Thus, the adjusting entry would cause total stockholder's equity to decrease.
