(The following information applies to the questions displayed below.) Letni Corporation engages in the manufacture and sale of semiconductor chips for the computing and communications Industries. During the past year, operating revenues remained relatively flat compared to the prior year but management notices a big Increase in accounts receivable. The increase in receivables is largely due to the recent economic slowdown In the computing and telecommunications industries. Many of the company's customers are having financial difficulty. lengthening the period of time it takes to collect on accounts. Below are year-end amounts. Accounts Receivable Average Age Accounts Written oft Operating Age Group Revenue TVO years 51,290,000 ago Last year 1.590.000 Current year 1,690,000 $149,000 5 days 159.000 329,000 7 days 40 days 1,000 0 Paul, the CEO of Letni, notices that accounts written off over the past three years have been minimal and therefore, suggests that no allowance for uncollectible accounts be established in the current year. Any account proving uncollectible can be charged to next year's financial statements (the direct write-off method). 2. Suppose that other companies in these Industries have had similar increasing trends in accounts receivable aging. These companies also had very successful collections in the past but now estimate uncollectible accounts to be 20% because of the significant downturn in the industries. If Letni uses the allowance method estimated at 20% of accounts receivable, what should be the balance of Allowance for Uncollectible Accounts at the end of the current year? Allowance for Uncollectible Accounts ! Required information The following information applies to the questions displayed below.) Letni Corporation engages in the manufacture and sale of semiconductor chips for the computing and communications Industries. During the past year, operating revenues remained relatively flat compared to the prior year but management notices a big increase in accounts recelvable. The increase in receivables is largely due to the recent economic slowdown In the computing and telecommunications industries. Many of the company's customers are having financial difficulty, lengthening the period of time it takes to collect on accounts. Below are year-end amounts. Operating Revenue Accounts Receivable Average Age Accounts Written of $1,290,000 $149,000 5 days $ 0 Age Group Two years ago Last year Current year 1,000 1,590,000 1,690,000 159,000 329,000 7 days 40 days Paul, the CEO of Letni, notices that accounts written off over the past three years have been minimal and, therefore, suggests that no allowance for uncollectible accounts be established in the current year. Any account proving uncollectible can be charged to next year's financial statements (the direct write-off method). 3. Based on your answer in Part 2, for what amount will total assets and expenses be misstated in the current year if Letni uses the direct write-off method? Ignore tax effects Misstated amount
