Question

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. Willie's compensation contract states that if the company generates operating income of at least $200,000, he will get a salary bonus early next year. Required: 1. Record the adjustment for uncollectible accounts using the accountant's estimate of 10% of accounts receivable. 2. After the adjustment is recorded in Requirement 1, what is the revised amount of operating income? Will Willie get his salary bonus? 3. Willie instructs the accountant to record the adjustment for uncollectible accounts using 7% rather than 10% of accounts receivable. Now will Willie get his salary bonus? Explain. 4. By how much would total assets and operating income be misstated using the 7% amount?

Answer 1

Answer:

Explanation:

The first part of the question is missing, so I looked for a similar question to fill in the blanks.

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.

Accounts receivable $858,000  

Estimated percentage uncollectible 10%

Allowance for uncollectible accounts $20,000 (credit)  

Operating income $249,000  

1. Record the adjustment for uncollectible accounts using the accountant's estimate of 10% of accounts receivable.

Dr Bad debt expense 65,800

    Cr Allowance for uncollectible accounts 65,800

($858,000 x 10%) - $20,000 = $65,800

2. After the adjustment is recorded in Requirement 1, what is the revised amount of operating income?

$183,200

3. Willie instructs the accountant to record the adjustment for uncollectible accounts using 7% rather than 10% of accounts receivable. Now will Willie get his salary bonus? Explain.

bad debt expense = ($858,000 x 7%) - $20,000 = $40,060

so adjusted net income = $249,000 - $40,060 = $208,940

Willie will get his bonus.

By how much would total assets and operating income be misstated using the 7% amount?

$65,800 - $40,060 = $25,740