You have recently been hired as the assistant controller for Clayton, Inc., a la

Question

You have recently been hired as the assistant controller for Clayton, Inc., a large, publicly held manufacturing company. Your immediate superior is the controller who, in turn, is responsible to the chief financial officer. The controller has assigned the task of preparing the year-end adjusting entry for bad debts to you. The allowance for uncollectibles accounts has a credit balance of $86,000 before the year-end adjustment. Your analysis indicates that an appropriate balance for the allowance account is $210,000. After showing your analysis to the controller, she tells you to adjust the allowance account to $310,000. Tactfully, you ask the controller for an explanation for the amount and she tells you, "We are having a really good year. Let's bump up the allowance."

Required:

Discuss the ethical dilemma you face. Consider your options and responsibilities along with the possible consequences of any action you might take.

Explanation / Answer

As per analysis the appropriate balance in allowance account should be $ 210,000 so you have to book [210000-86000] = 124000as bad debt expense .But your immediate controller says since the year was good, balance required is $ 310,000 .so you are in ethical dilemma that how much bad debt expense should be booked in income statement   so that it gives true and fair view of financial results [that is expense is nor overbooked resulting in lower income]

Your responsibility is to analyze that whether increase sales (As season is good) calls for increase in allowance account (might be possible more sales are on cash or customer has better financial viability)

You have two options in a current situation:

Consider what controller has said or make further analysis of data to analyze whether increased allowance is required or not.

In my opinion ,as a assistant controller you should further analyze your data (taking in to account past trends ) also looking in to whether increased sales are from cash or credit ,customer capability of repayment and accordingly making provision for uncollectible account .

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.