On January 1, Year 2, Kincaid Company's Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $64,000 and $1,400, respectively. During Year 2, Kincaid reported $155,000 of credit sales, wrote off $1,250 of receivables as uncollectible, and collected cash from receivables amounting to $166,700. Kincaid estimates that it will be unable to collect one percent (1%) of credit sales.

What effect will the entry to recognize the uncollectible accounts expense for Year 2 have on the elements of the financial statements?

Multiple Choice

• Increase total assets and retained earnings.

• Decrease total assets and increase retained earnings.

• Decrease total assets and net income.

• Increase total assets and decrease net income.