Financial Accounting
4th Edition
ISBN: 9781259307959
Author: J. David Spiceland, Wayne M Thomas, Don Herrmann
Publisher: McGraw-Hill Education
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Chapter 5, Problem 5.6BP
1.
To determine
To record: The adjustment for uncollectible accounts using the estimate of 4% of
2.
To determine
The revised amount of operating income, and identify whether O Flooring will meet analysts’ expectations.
3.
To determine
The amount by which the total assets and operating income would be misstated if the accountant records $700,000 as bad debt expense.
4.
To determine
To Explain: The cause which motivates Person W to manage operating income in such a way.
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Wanda B. Rich is the CEO of Outlet Flooring, a discount provider of carpet, tile, wood, and laminate flooring. At the end of the year, the company’s accountant provides Wanda with the following information, before any adjustment.
Accounts receivable
$
10,800,000
Estimated percentage uncollectible
2
%
Allowance for uncollectible accounts
$
108,000
(credit)
Operating income
$
2,800,000
Wanda has significant stock ownership in the company and, therefore, would like to keep the stock price high. Analysts on Wall Street expect the company to have operating income of $2,120,000. The fact that actual operating income is well above this amount will make investors happy and help maintain a high stock price. Meeting analysts’ expectations will also help Wanda keep her job.
2-a. After the adjustment is recorded in Part 1, what is the revised amount of operating income?
Revised operating income
Will Outlet Flooring still meet analysts’…
Wanda B. Rich is the CEO of Outlet Flooring, a discount provider of carpet, tile, wood, and laminate flooring. At the end of the year, the company’s accountant provides Wanda with the following information, before any adjustment.
Accounts receivable
$10,800,000
Estimated percentage uncollectible
2%
Allowance for uncollectible accounts
$108,000 (credit)
Operating income
$2,800,000
Wanda has significant stock ownership in the company and, therefore, would like to keep the stock price high. Analysts on Wall Street expect the company to have operating income of $2,120,000. The fact that actual operating income is well above this amount will make investors happy and help maintain a high stock price. Meeting analysts’ expectations will also help Wanda keep her job.
Required:
1. Record the adjustment for uncollectible accounts using the accountant’s estimate of 2% of accounts receivable. (If no entry is required for a particular transaction/event, select "No Journal Entry…
Wanda B. Rich is the CEO of Outlet Flooring, a discount provider of carpet, tile, wood, and laminate flooring. At the end of the year, the company’s accountant provides Wanda with the following information, before any adjustment.
Accounts receivable
$
10,800,000
Estimated percentage uncollectible
2
%
Allowance for uncollectible accounts
$
108,000
(credit)
Operating income
$
2,800,000
Wanda has significant stock ownership in the company and, therefore, would like to keep the stock price high. Analysts on Wall Street expect the company to have operating income of $2,120,000. The fact that actual operating income is well above this amount will make investors happy and help maintain a high stock price. Meeting analysts’ expectations will also help Wanda keep her job.
3. Wanda instructs the accountant to instead record $680,000 as bad debt expense so that operating income will exactly meet analysts’ expectations. By how much would total assets and…
Chapter 5 Solutions
Financial Accounting
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