You have recently been hired as the assistant controller for Stanton Industries. Your immediate superior is the controller who, in turn, reports to the vice president of finance.

The controller has assigned

you the task of preparing the year-end adjustments. For receivables, you have

prepared an aging of accounts receivable and have applied historical

percentages to the balances of each of the age categories. The analysis

indicates that an appropriate balance for Allowance for Uncollectible Accounts

is $180,000. The existing balance in the allowance account prior to any

adjustment is a $20,000 credit balance.

After showing your analysis

to the controller, he tells you to change the aging category of a large account

from over 120 days to current status and to submitt a new invoice to the

customer with a revised date that agrees with the new aging category. This will

change the required allowance for uncollectible accounts from $180,000 to

$135,000. Tactfully, you ask the controller for an explanation for the change

and he tells you, "We need the extra income; the bottom line is too

low."

Required:

1.Understand the reporting effect: What is the effect on income before taxes of the change requested by the controller?

2.Specify the options: If you donot make the change, how would the additional 45000 of allowance for uncollectible accounts affect total assets?

3.Identify the impact: Are investors and creditors potentially harmed by the controllers suggestion?

4.Make a decision: should you follow the controller's suggestion?