Question
Company A is a retailer of commercial and residential plumbing products. Owens, the companys staff accountant, is in the process of making year-end adjusting entries
Company A is a retailer of commercial and residential plumbing products. Owens, the companys staff accountant, is in the process of making year-end adjusting entries for uncollectible accounts receivable. Recently, the company has experienced an increase in accounts that have become uncollectible. As a result, Owens believes that the company should increase the percentage used for estimating doubtful accounts from 2% to 5% of credit sales. This change will significantly increase bad debt expense, resulting in a drop in earnings for the first time ever for the company. The company president, Williams, is under considerable pressure to meet the earnings goals for the fiscal year. He suggests to Owens that this is not the proper time to change the estimate. He instructs Owen to keep the estimate at 2%. Owen is confident that 2% is way too low, but he follows William's instructions.
Evaluate the decision to use the lower percentage to improve earnings. Are William and Owen acting in an ethical manner?
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