Omitted provision adjustment shifts expense to year 3 Steps:

• Calculate year 1 provision: 5% × $64,000 =$3,200.
• Calculate required year 2 provision: 5% × $70,000 =$3,500.
• Adjustment needed at end of year 2: $3,500 –$3,200 = $300 increase in provision (expense).
• Forgetting the adjustment leaves provision at $3,200; year 3 adjustment includes this$300, reducing year 3 profit by $300.

Why A is correct:

• Per accrual accounting, the unrecorded year 2 provision expense of $300 is recognized in year 3, decreasing profit (IAS 37 on provisions).

Why the others are wrong:

• B: $800 miscalculates the provision difference as 5$16,000 increase.
• C: Forgetting overstates year 2 profit but understates year 3 profit, not increases it.
• D: $100 has no basis in the 5% receivables calculation.

Final answer: A