You have recently been hired as the assistant controller for Stanton Industries,

Question

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 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,

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

The revision would reduce the value of adjustment and increase net income by 45000 (180000 - 135000).

Part B:

The alterations recommended by the controller should not be made. It is your responsibility to report this matter to the next higher level in the organization.

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.