Letni Corporation engages in the manufacture and sale of semiconductor chips for the computing and communications industries. During the past year, operating revenues remained relatively flat compared to the prior year but management notices a big increase in accounts receivable. The increase in receivables is largely due to the recent economic slowdown in the computing and telecommunications industries. Many of the company’s customers are having financial difficulty, lengthening the period of time it takes to collect on accounts. Below are year-end amounts. Age Group Operating Revenue Accounts Receivable Average Age Accounts Written Off Two years ago $ 1,160,000 $ 136,000 5 days $ 0 Last year 1,460,000 146,000 7 days 1,000 Current year 1,560,000 316,000 40 days 0 Paul, the CEO of Letni, notices that accounts written off over the past three years have been minimal and, therefore, suggests that no allowance for uncollectible accounts be established in the current year. Any account proving uncollectible can be charged to next year’s financial statements (the direct write-off method). 3. Based on your answer in Part 2, (answer for part 2 is $47,400) for what amount will total assets and expenses be misstated in the current year if Letni uses the direct write-off method? Ignore tax effects Misstated amount

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Letni Corporation engages in the manufacture and sale of semiconductor chips for the computing and communications industries. During the past year, operating revenues remained relatively flat compared to the prior year but management notices a big increase in accounts receivable. The increase in receivables is largely due to the recent economic slowdown in the computing and telecommunications industries. Many of the company’s customers are having financial difficulty, lengthening the period of time it takes to collect on accounts. Below are year-end amounts.

Age Group	Operating Revenue	Accounts Receivable	Average Age	Accounts Written Off
Two years ago	$	1,160,000		$	136,000	5	days	$	0
Last year		1,460,000			146,000	7	days		1,000
Current year		1,560,000			316,000	40	days		0

Paul, the CEO of Letni, notices that accounts written off over the past three years have been minimal and, therefore, suggests that no allowance for uncollectible accounts be established in the current year. Any account proving uncollectible can be charged to next year’s financial statements (the direct write-off method).

3. Based on your answer in Part 2, (answer for part 2 is $47,400) for what amount will total assets and expenses be misstated in the current year if Letni uses the direct write-off method? Ignore tax effects

Misstated amount

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