You have recently been hired as the assistant controller for Stanton Industries, a large, publicly held manufacturing company. Your immediate superior is the controller, who, in turn, is responsible to the vice president of finance. The controller has assigned you the task of preparing the year-end adjusting entries. In the receivables area, you have prepared an aging of accounts receivable and have applied historical percentages to the balances of each of the age categories. The analysis indicates that an appropriate balance for the allowance for uncollectible accounts is $180,000. The existing balance in the allowance account prior to any adjusting entry is a $20,000 credit balance. After showing your analysis to the controller, he tells you to change the aging category of a large
You have recently been hired as the assistant controller for Stanton Industries, a large, publicly held manufacturing company. Your immediate superior is the controller, who, in turn, is responsible to the vice president of finance. The controller has assigned you the task of preparing the year-end adjusting entries. In the receivables area, you have prepared an aging of accounts receivable and have applied historical percentages to the balances of each of the age categories. The analysis indicates that an appropriate balance for the allowance for uncollectible accounts is $180,000. The existing balance in the allowance account prior to any adjusting entry is a $20,000 credit balance. After showing your analysis to the controller, he tells you to change the aging category of a large
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
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A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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Please answer both questions
Transcribed Image Text:You have recently been hired as the assistant
controller for Stanton Industries, a large,
publicly held manufacturing company. Your
immediate superior is the controller, who, in
turn, is responsible to the vice president of
finance.
The controller has assigned you the task of
preparing the year-end adjusting entries. In the
receivables area, you have prepared an aging of
accounts receivable and have applied historical
percentages to the balances of each of the age
categories. The analysis indicates that an
appropriate balance for the allowance for
uncollectible accounts is $180,000. The existing
balance in the allowance account prior to any
adjusting entry is a $20,000 credit balance.
After showing your analysis to the controller, he
tells you to change the aging category of a large
Transcribed Image Text:After showing your analysis to the controller, he
tells you to change the aging category of a large
account from over 120 days to current status and
to prepare a new invoice to the customer with a
revised date that agrees with the new aging
category. This will change the required allowance
for uncollectible accounts from $180,000 to
$135,000. Tactfully, you ask the controller for an
explanation for the change and he tells you, "We
need the extra income; the bottom line is too
low."
Required:
1. What is the effect on income before taxes of
the change requested by the controller?
2. Discuss the ethical dilemma you face.
Consider your options and responsibilities
along with the possible consequences of any
action you might take.
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