Management uses the percentage-of-sales approach method to calculate the allowance for doubtful debts. Management calculated the allowance for doubtful debts on the basis of 2% of sales. However, by year-end it was aware that the rate should have really been 3% of sales. Management does not adjust the allowance for doubtful debts at year-end. As a result:

Select one:

a. Assets are overstated, and net profit is overstated

b. Assets are overstated, and net profit is understated

c. Assets are understated, and net profit is overstated

d. Assets are understated, and net profit is understated