Question

As the assistant controller for S Industries you are and are responsible for preparing the year-end...

As the assistant controller for S Industries you are and are responsible for preparing the year-end adjusting entry to estimate uncollectible accounts receivable. The company uses the Allowance Method. For the current year, you have used the historical percentage of 20% of total year-end accounts receivable as a reasonable estimate of amounts that won’t be collected. The controller is concerned about reporting a lower profit for the current year. The controller tells the assistant controller to lower the percentage to 10% this year which would lower the expense resulting in a higher net income.   What should you do?

Multiple Choice

  • Keep the percentage 20% since this is the most accurate and reasonable estimate for the company’s future uncollectible accounts receivable.

  • Changing the percentage does not violate an ethical consideration.

  • Lower the percentage to 10% to avoid questions from the company’s investors.   

  • Lower the percentage to 10% to make sure the controller gives you a good review and raise this year.

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Answer #1

The most appropriate action is as follows:

Keep the percentage 20% since this is the most accurate and reasonable estimate for the company’s future uncollectible accounts receivable.

Explanation:

Changing the percentage and not presenting a true and fair view of the financial statements is unethical.

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