Ernie Upshaw is the supervising manager of Sleep Tight Bedding. At the end of the year, the companys accounting manager provides Ernie with the following information, before any adjustment.

Accounts receivable	500,000
Estimated percent uncollectible	9%
Allowance for uncollectible accounts	20,000 (debit)
Operating Income	320,000

In the previous year, Sleep Tight Bedding reported operating income (after adjustment) of $275,000. Ernie knows that its important to report an upward trend in earnings. This is important not only for Ernies compensation and employment, but also for the companys stock price. If investors see a decline in earnings, the stock price could drop significantly, and Ernie owns a large amount of the companys stock. This has caused Ernie many sleepless nights.

1. Record the adjustment for uncollectible accounts using the accounting managers estimate of 9% of accounts receivable.

2. After the adjustment is recorded in Requirement 1, what is the revised amount of operating income?

3. Ernie instructs the accounting manager to record the adjustment for uncollectible accounts using 4% rather than 9% of accounts receivable, how much would total assets and expenses be misstated using the 4% amount?