Becky Smith is the manager of a wholesale food company. Her compensation, in part, is incentive-based. In other words, the higher the company income, the higher her incentive compensation. Each year, in an effort to influence her bonus, Becky makes several recommendations, concerning adjusting entries, to the company controller. One of her favorites is to ask the controller to reduce the estimate of doubtful accounts.

1. How does lowering the estimate of doubtful accounts affect the income statement and balance sheet?

2. Is there an ethical consideration in this case? If so, what is it?

3. Should Becky be permitted to weigh in on adjusting entries under these circumstances? Why or why not?