Willie Cheetum is the CEO of Happy Foods, a distributor of produce to grocery store chains throughout the Midwest. At the end of the year, the company's accounting manager provides Willie with the following information, before any adjustment. $ 1,070,000 Accounts receivable Estimated percentage uncollectible Allowance for uncollectible accounts Operating income 9% $ 37,000 (credit) $ 257,000 Willie's compensation contract states that if the company generates operating income of at least $207,000, he will get a salary bonus 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? 4. By how much would total assets and operating income be misstated using the 6% amount?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Willie Cheetum is the CEO of Happy Foods, a distributor of produce to grocery store chains throughout the Midwest. At the end of the
year, the company's accounting manager provides Willie with the following information, before any adjustment.
$ 1,070,000
Accounts receivable
Estimated percentage uncollectible
Allowance for uncollectible accounts
Operating income
9%
$ 37,000 (credit)
$ 257,000
Willie's compensation contract states that if the company generates operating income of at least $207,000, he will get a salary bonus
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?
4. By how much would total assets and operating income be misstated using the 6% amount?
Transcribed Image Text:Willie Cheetum is the CEO of Happy Foods, a distributor of produce to grocery store chains throughout the Midwest. At the end of the year, the company's accounting manager provides Willie with the following information, before any adjustment. $ 1,070,000 Accounts receivable Estimated percentage uncollectible Allowance for uncollectible accounts Operating income 9% $ 37,000 (credit) $ 257,000 Willie's compensation contract states that if the company generates operating income of at least $207,000, he will get a salary bonus 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? 4. By how much would total assets and operating income be misstated using the 6% amount?
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