Espana Van Conversions had credit sales of $2,000,000 during Year 1. On 12/31/Year 1, the balance in Accounts Receivable was $81,000. The company estimates bad debts to equal 1% of credit sales. What effect will the companys 12/31 adjusting entry have on the companys income statement and balance sheet? (Please provide an explanaton of the answer)

a. Decrease income by $20,000; no effect on balance sheet

b. Decrease income by $20,000; decrease assets by $20,000

c. No effect on either income statement or balance sheet

d. None of the above.