Ernie Upshaw is the supervising manager of Sleep Tight Bedding. At the end of the year, the company's accounting manager providesErnie with the following information, before any adjustment.Accounts receivableEstimated percent uncollectibleAllowance for uncollectible accounts.Operating income$ 520,000$ 22,000$ 340,00088(debit)In the previous year, Sleep Tight Bedding reported operating income (after adjustment) of $295,000. Ernie knows that it's important toreport an upward trend in earnings. This is important not only for Ernie's compensation and employment, but also for the company'sstock price. If investors see a decline in earnings, the stock price could drop significantly, and Ernie owns a large amount of thecompany's stock. This has caused Ernie many sleepless nights.Required:1. Record the adjusting entry for uncollectible accounts using the accounting manager's estimate of 8% of accounts receivable.2-a. After the adjusting entry is recorded in requirement 1, what is the revised amount of operating income?2-b. Does operating income increase or decrease compared to the previous year?3. Ernie instructs the accounting manager to record the adjusting entry for uncollectible accounts using 3% rather than 8% of accountsreceivable. After this adjustment, does operating income increase or decrease compared to the previous year?4. By how much would total assets and expenses be misstated using the 3% amount?Complete this question by entering your answers in the tabs below.

Operating income measures a company's profitability before accounting for financing operations,…

Ernie Upshaw is the supervising manager of Sleep Tight Bedding. At the end of the Ernie with the following information, before any adjustment. Accounts receivable Estimated percent uncollectible Allowance for uncollectible accounts. Operating income. $ 520,000 $ 22,000 (debit) $ 340,000 88

Ernie Upshaw is the supervising manager of Sleep Tight Bedding. At the end of the Ernie with the following information, before any adjustment. Accounts receivable Estimated percent uncollectible Allowance for uncollectible accounts. Operating income. $ 520,000 $ 22,000 (debit) $ 340,000 88

Century 21 Accounting General Journal

11th Edition

ISBN:9781337680059

Author:Gilbertson

Publisher:Gilbertson

Chapter14: Accounting For Uncollectible Accounts Receivable

Section: Chapter Questions

Problem 1AP

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Concept explainers

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

Question

Ernie Upshaw is the supervising manager of Sleep Tight Bedding. At the end of the year, the company's accounting manager provides
Ernie with the following information, before any adjustment.
Accounts receivable
Estimated percent uncollectible
Allowance for uncollectible accounts.
Operating income
$ 520,000
$ 22,000
$ 340,000
88
(debit)
In the previous year, Sleep Tight Bedding reported operating income (after adjustment) of $295,000. Ernie knows that it's important to
report an upward trend in earnings. This is important not only for Ernie's compensation and employment, but also for the company's
stock price. If investors see a decline in earnings, the stock price could drop significantly, and Ernie owns a large amount of the
company's stock. This has caused Ernie many sleepless nights.
Required:
1. Record the adjusting entry for uncollectible accounts using the accounting manager's estimate of 8% of accounts receivable.
2-a. After the adjusting entry is recorded in requirement 1, what is the revised amount of operating income?
2-b. Does operating income increase or decrease compared to the previous year?
3. Ernie instructs the accounting manager to record the adjusting entry for uncollectible accounts using 3% rather than 8% of accounts
receivable. After this adjustment, does operating income increase or decrease compared to the previous year?
4. By how much would total assets and expenses be misstated using the 3% amount?
Complete this question by entering your answers in the tabs below.

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