Problem 5-6A (Algo) Using estimates of uncollectible accounts to overstate income (LO5-5) Willie Cheetum is the CEO of Happy Foods, a distributor of produce to grocery store chains throughout the Midwest. At the end of year, the company's accounting manager provides Willie with the following information, before any adjustment. Accounts receivable Estimated percentage uncollectible Allowance for uncollectible accounts Operating income $ 1,040,000 9% $ 34,000 (credit) $ 254,000 Willie's compensation contract states that if the company generates operating income of at least $204,000, he will get a salary bo early next year. Required: 1. Record the adjusting entry for uncollectible accounts using the accountant's estimate of 9% of accounts receivable. 2-a. After the adjusting entry is recorded in requirement 1, what is the revised amount of operating income? 2-b. Will Willie get his salary bonus? 3. Willie instructs the accountant to record the adjusting entry for uncollectible accounts using 6% rather than 9% of accounts receivable. Now will Willie get his salary bonus?
Problem 5-6A (Algo) Using estimates of uncollectible accounts to overstate income (LO5-5) Willie Cheetum is the CEO of Happy Foods, a distributor of produce to grocery store chains throughout the Midwest. At the end of year, the company's accounting manager provides Willie with the following information, before any adjustment. Accounts receivable Estimated percentage uncollectible Allowance for uncollectible accounts Operating income $ 1,040,000 9% $ 34,000 (credit) $ 254,000 Willie's compensation contract states that if the company generates operating income of at least $204,000, he will get a salary bo early next year. Required: 1. Record the adjusting entry for uncollectible accounts using the accountant's estimate of 9% of accounts receivable. 2-a. After the adjusting entry is recorded in requirement 1, what is the revised amount of operating income? 2-b. Will Willie get his salary bonus? 3. Willie instructs the accountant to record the adjusting entry for uncollectible accounts using 6% rather than 9% of accounts receivable. Now will Willie get his salary bonus?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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