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 $ $502,000$

Estimated percent uncollectible $8\%$

Allowance for uncollectible accounts $ $20,200($debit$)$

Operating income $ $322,000$

In the previous year, Sleep Tight Bedding reported operating income $($after adjustment$)$ of $$277,000.$ Ernie knows that it$$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?