Question

Katherine Irving, controller of Lotan Corp., is aware of a pronouncement on accounting changes. After reading the pronouncement, she is confused about what action should be taken on the following items related to Lotan Corp. for the year 2020.

  • 1. In 2020, Lotan decided to change its policy on accounting for certain marketing costs. Previously, the company had chosen to defer and amortize all marketing costs over at least 5 years because Lotan believed that a return on these expenditures did not occur immediately. Recently, however, the time differential has considerably shortened, and Lotan is now expensing the marketing costs as incurred.
  • 2. In 2020, the company examined its entire policy relating to the depreciation of plant equipment. Plant equipment had normally been depreciated over a 15-year period, but recent experience has indicated that the company was incorrect in its estimates and that the assets should be depreciated over a 20-year period.
  • 3. One division of Lotan Corp., Hawthorne Co., has consistently shown an increasing net income from period to period. On closer examination of its operating statement, it is noted that bad debt expense and inventory obsolescence charges are much lower than in other divisions. In discussing this with the controller of this division, it has been learned that the controller has increased his net income each period by knowingly making low estimates related to the write-off of receivables and inventory.
  • 4. In 2020, the company purchased new machinery that should increase production dramatically. The company has decided to depreciate this machinery on an accelerated basis, even though other machinery is depreciated on a straight-line basis.
  • 5. All equipment sold by Lotan is subject to a 3-year warranty. It has been estimated that the expense ultimately to be incurred on these machines is 1% of sales. In 2020, because of a production breakthrough, it is now estimated that ½ of 1% of sales is sufficient. In 2018 and 2019, warranty expense was computed as $64,000 and $70,000, respectively. The company now believes that these warranty costs should be reduced by 50%.
  • 6. In 2020, the company decided to change its method of inventory pricing from average-cost to the FIFO method. The effect of this change on prior years is to increase 2018 income by $65,000 and increase 2019 income by $20,000.

Instructions

Katherine Irving has come to you, as her CPA, for advice about the situations above. Prepare a report, indicating the appropriate accounting treatment that should be given for each of these situations.

 

Expert Solution

Want to see the full answer?

Check out a sample Q&A here
Blurred answer
Students who’ve seen this question also like:
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
Not helpful? See similar books
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting For Changes And Errors.. 8E
marketing sidebar icon
Want to see this answer and more?
Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*
*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.

Related Accounting Q&A

Find answers to questions asked by students like you.

Q: Helen Company's directors decided on November 1, 2011 to restructure the entity's operations as…

A: Recognition in Restructuring Provision Most of Entity to decide the Restructure provision due to…

Q: Helen Company's directors decided on November 1, 2011 to restructure the entity's operations as…

A: Restructuring cost provision is provision related with all the direct expenses which are incurred…

Q: Helen Company's directors decided on November 1, 2011 to restructure the entity's operations as…

A: Restructuring cost accrual is provision related with all the direct expenses which are incurred for…

Q: Coronado Industries, a manufacturer of household paints, is preparing annual financial statements at…

A: Financial statements are the reports prepared by an entity in order to make a disclosure of entity's…

Q: Sunshine Limited, in preparation of its December 31, 2020, financial statements, is attempting to…

A: Click to see the answer

Q: Sunshine Limited, in preparation of its December 31, 2020, financial statements, is attempting to…

A: Click to see the answer

Q: Polska Corporation, in preparation of its December 31, 2020, financial statements, is attempting to…

A: a. Journal entries are represented as below: Formulae used are represented as below:

Q: Villa Company has experienced tough competition, leading it to seek concessions from its employees…

A: Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after…

Q: clista Inc., a bicycle manufacturer, is preparing its financial statements for December 31, 2020.…

A: The following transaction is journalized for Ciclista bicycle manufacturer.

Q: On March 1, 2019, a suit was filed against Eloise Company for patent infringement. Eloise's legal…

A: A Provision is nothing but a liability of uncertain amount with uncertain timing. A liability is a…

Q: Burnitz Manufacturing Company was organized on January 1, 2020. During 2020, it has used in its…

A: Depreciation means decline in the estimation of benefit inside its valuable life because of mileage…

Q: Described below are six independent and unrelated situations involving accounting changes. Each…

A: Journal entry: Journal is a book of prime entry or a book of original entry in which transactions…

Q: Polska SA, in preparation of its December 31, 2019, financial statements, is attempting to determine…

A: a. Following are the journal entries for the situations: Formulation:

Q: Kingbird Company has experienced tough competition, leading it to seek concessions from its…

A: Pension Expenses: It include following costs: A. Service and interest cost, B. Amortization of prior…

Q: Prepare the journal entry at December 31, 2019, to record income taxes related to the loss…

A: Carry forward of losses refers to the scenario where a company has losses in the current year and…

Q: Described below are six independent and unrelated situations involving accounting changes. Each…

A: Journal: It is the first step of recording financial transactions. It is used to prepare the…

Q: Described below are six independent and unrelated situations involving accounting changes. Each…

A: Event Type of Change 1  Change in Accounting Estimate 2  Change in Accounting Estimate 3…

Q: Described below are six independent and unrelated situations involving accounting changes. Each…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Described below are six independent and unrelated situations involving accounting changes. Each…

A: JOURNAL ENTRY-IT IS A BOOK OF PRIMARY ENTRY OR A BOOK OF ORIGINAL ENTRY IN WHICH TRANSACTION ARE…

Q: Described below are six independent and unrelated situations involving accounting changes. Each…

A: 1.

Q: You are the accountant for a division of a company that is constructing a building for its own use.…

A: PLEASE LIKE THE ANSWER YOUR RESPONSE MATTERS Explanation: For capitalization of interest, the…

Q: Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each…

A: Contingencies The existing situation that is uncertain and involves potential loss or gain depending…

Q: You are the new controller for Engineered Solutions. The company treasurer, Randy Patey, believes…

A: Click to see the answer

Q: Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each…

A: The given cases are about to decide whether these are contingent gains or contingent losses and…

Q: Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each…

A: a. Here, in the given situation, judgment is provided against the Company B as on February 3, 2022.…

Q: Voi company provided the following facts regarding pending litigation on December 31,2020 1. The…

A: Contingent Liability: It is a liability that might or might not materialize in the future which…

Q: CL successfully defended its trade name in January 2018, incurring P4,900 in legal fees. At the…

A: Journal Entry: Journal entry is the book of original entry where first transactions are recorded in…

Q: At a board meeting in June 2020, Yes Co's directors made the decision to close down one of its…

A: Redundancy cost is the sum of money given by the employer to the employee who has been redundant

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Redundancy cost = $5,000*200 = $1,000,000 Loss on sale of factory's plant = $500,000 -$50,000-…

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Carrying amount of an asset is referred to as the cost of the asset less accumulated depreciation on…

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Click to see the answer

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Click to see the answer

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Discontinued Operations: When an entity shut down one of its division or operation, it is called…

Q: At a board meeting in June 2020, Yes Co's directors made the decision to close down one of its…

A: Click to see the answer

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Yes Co.'s in June 2020, Directors decided to close one of its factories by 30.09.2020 Of employees…

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: The following computations are done for Yes Company.

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Following is the answer to the given question

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Discontinued operations means the stoppage of the operations of the business due to insolvency, sick…

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Discontinued operations are those business/branches/agencies or any form of part of business of the…

Q: At a board meeting in June 2020, Yes Co’s directors made the decision to close down one of its…

A: Following is the answer to the given question

Q: Aljur Company is involved in litigation regarding a faulty product sold in a prior year. The entity…

A: Definition: A contingent liability refers to the liabilities that may be incurred depending upon the…

Q: Polska SA, in preparation of its December 31, 2019, financial statements, is attempting to determine…

A: Journal entry is a record of financial transaction in the books of accounts maintained by an…

Q: I asked this question just now and received the incorrect answer. Trying again...     .   On…

A: Click to see the answer

Q: D. At the beginning of current year, Zamba Company announced the decision to close the factory…

A: Short term benefit given to 20 employees for retaining under termination plan.

Q: On December 1, 2020, Shamrock Inc. delivered 10 boxes of Otap bread and 10 packs of sample bread,…

A: COGS refer to the direct cost of producing the goods sold by the company. It includes cost of…

Q: Angelou Corporation was organized in 2019 and began operations at the beginning of 2020. The company…

A: The costs incurred for organizing a corporation are known as organizing costs. Some of the examples…

Q: Modern Footwear LLC received intimation of claim for OMR 20,000 as damages because some foot-wears…

A: Click to see the answer

Q: In May 2019, Caso Company filed suit against Wayne Company seeking P1,900,000 damages for patent…

A: Solution: As a generally accepted accounting principal, we should not recognize contingent assets in…

Q: On January 1, 2021, Weaver Corporation purchased a patent for $231,000. The remaining legal life is…

A: Amortization expense = Cost of patent / Estimated useful life = $231,000 / 6 = $38,500 Amortization…

Q: In 2021, Winslow International, Inc.’s controller discovered that ending inventories for 2019 and…

A: Overstated ending inventory for 2020 would decrease the cost of goods sold and increase the net…

Knowledge Booster
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required. Instructions Answer the following questions. a.    What, if any, is the ethical issue involved in this case? b.    Is the financial vice president acting improperly or immorally? c.    What does Weller have to gain by advocacy of early implementation? d.    Which stakeholders might be affected by the decision against early implementation?
    Beautiful Company is involved in litigation regarding a faulty product sold in a prior year during 2021. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be P500,000.How much is the Provision to be reported at December 31, 2021?
    Helen Company's directors decided on November 1, 2011 to restructure the entity's operations as follows: Factory A would be closed down and put on the market for sale. Employees working in Factory A would be retrenched on November 30, 2011, and would be paid their accumulated entitlements plus six months' wages. Some employees working in Factory A would be transferred to Factory B, which would continue operating. On December 31, 2011, the following transactions and events had occurred: The retrenched employees have left and their accumulated entitlements have been paid. However, an amount of P1,000,000, representing a portion of the six months' wages for the retrenched employees, has still not been paid. Costs of P300,000 are expected to be incurred in transferring the remaining employees to their new work in Factory B. The transfer is planned for January 15, 2012. One employee, Juan Cruz, remains in order to complete administrative tasks relating to the closure of Factory A and the…
  • (a) Lara Croft has been hired as a new auditor for Jolie Inc. Ms. Croft has suggested the following accounting changes in regards to the company’s financial statements.     At December 31, 2019, Jolie Inc. had a receivable of $500,000 from Relic Inc. on its statement of financial position. Relic had gone bankrupt, and no recovery is expected. Jolie proposes to write off the receivable as a prior period item.     The client proposes the following changes in depreciation policies. (a) For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2019, would have been $250,000 less. The effect of the change on 2020 income alone is a reduction of $60,000.     (b) For its equipment in the leasing division, the client proposes to adopt the sum-of-the[1]years’-digits depreciation method. The client had never used SYD before. The first year the client operated a leasing…
    On November 5, 2020, a Dunn Company truck was in an accident with an auto driven by Bell. The entity received notice on January 12, 2021 of a lawsuit for P700,000 damages for personal injuries suffered by Bell. The entity's counsel believed it is probable that Bell will be awarded an estimated amount in the range between P200,000 and P500,000. The possible outcomes are equally likely. The accounting year ends on December 31 and the 2020 financial statements were issued on March 31, 2021. What amount of provision should be accrued on December 31, 2020?
    Norma Smith is the controller of Baylor Corporation and is responsible for the preparation of the year-end financial statements. The following transactions occurred during the year. a.    On December 20, 2020, a former employee filed a legal action against Baylor for $100,000 for wrongful dismissal. Management believes the action to be frivolous and without merit. The likelihood of payment to the employee is remote. b.    Bonuses to key employees based on net income for 2020 are estimated to be $150,000. c.    On December 1, 2020, the company borrowed $600,000 at 8% per year. Interest is paid quarterly. d.    Accounts receivable at December 31, 2020, is $10,000,000. An aging analysis indicates that Baylor’s expense provision for doubtful accounts is estimated to be 3% of the receivables balance. e.    On December 15, 2020, the company declared a $2.00 per share dividend on the 40,000 shares of common stock outstanding, to be paid on January 5, 2021. f.    During the year, customer…
  • On January 5, 2022, a company received a P5,000,000-complaint from one of its employees who suffered an accident last December 31, 2021, while in the production department. The company's legal counsel believed it would probably lose the case and the best estimate of the loss was P2,000,000. The complainant offered an out of court settlement of P3,000,000 but the company did not accept. On February 1, 2022, the court ordered the company to pay P2,500,000. The company paid the employee on February 10, 2022. The company's P10,000,000 comprehensive insurance policy has P1,000,000 deductible clauses. The company's financial statements were issued on March 15, 2022. What amount of liability from lawsuit should the company recognize in its December 31, 2021 statement of financial position? A company sells gift certificates for P750 each. On December 31, 2019, the company had 1,000 gift certificates outstanding. In 2020, the company sold 4,000 gift certificates while a total 3,600 were…
    On January 5, 2022, a company received a P5,000,000-complaint from one of its employees who suffered an accident last December 31, 2021, while in the production department. The company's legal counsel believed it would probably lose the case and the best estimate of the loss was P2,000,000. The complainant offered an out of court settlement of P3,000,000 but the company did not accept. On February 1, 2022, the court ordered the company to pay P2,500,000. The company paid the employee on February 10, 2022. The company's P10,000,000 comprehensive insurance policy has P1,000,000 deductible clauses. The company's financial statements were issued on March 15, 2022. What amount of liability from lawsuit should the company recognize in its December 31, 2021 statement of financial position?
    Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared. The income tax rate is 25% for all years.  A five-year casualty insurance policy was purchased at the beginning of 2019 for $31,000. The full amount was debited to insurance expense at the time. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $568,000 on December 29, 2010, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000. On December 31, 2020,…
  • Sunshine Limited, in preparation of its December 31, 2020, financial statements, is attempting to determine theproper accounting treatment for each of the following situations.1. As a result of uninsured accidents during the year, personal injury suits for $350,000 and $60,000 have been filed against the company. It is the judgement of Sunshine’s legal counsel that an unfavourable outcome is unlikely in the $60,000 case but that an unfavourable verdict approximating $250,000 will probably result in the $350,000 case. 2. Sunshine Limited owns a subsidiary in a foreign country that has a book value of $5,725,000 and an estimated fair value of $9,500,000. The foreign government has communicated to Sunshine its intention to expropriate the assets and business of all foreign investors. On the basis of settlements other firms have received from this same country, it is virtually certain that Sunshine will receive 40% of the fair value of its properties as final settlement. 3. Sunshine’s…
    Euphoria Company had a balance of P820,000 in the professional fees expense account on December 31, 2020, before considering year-end adjustments relating to the following:➢ Consultants were hired for a special project at a total fee not to exceed P650,000. The entity had recorded P550,000 of these fees based on building for work performed in 2020.➢ The attorney’s letter requested by the auditor dated Jan. 31, 2021, indicated that legal fees of P60,000 were billed on Jan. 15, 2021 for worked performed in Nov. 2020, and the unbilled fees for Dec. 31, 2020 were P70,000.What amount should be reported as professional fees expense for the year ended December 31, 2020?
    Coronado Industries, a manufacturer of household paints, is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Coronado recall all cans of this paint sold in the last six months. The management of Coronado estimates that this recall would cost $ 810000. What accounting recognition, if any, should be accorded this situation?   Appropriation of retained earnings of $ 810000 Operating expense of $ 810000 and liability of $ 810000 No recognition Note disclosure only
    • SEE MORE QUESTIONS
    Recommended textbooks for you
  • Intermediate Accounting: Reporting And Analysis
    Accounting
    ISBN:9781337788281
    Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
    Publisher:Cengage Learning
    Individual Income Taxes
    Accounting
    ISBN:9780357109731
    Author:Hoffman
    Publisher:CENGAGE LEARNING - CONSIGNMENT
    SWFT Individual Income Taxes
    Accounting
    ISBN:9780357391365
    Author:YOUNG
    Publisher:Cengage
  • CONCEPTS IN FED.TAX., 2020-W/ACCESS
    Accounting
    ISBN:9780357110362
    Author:Murphy
    Publisher:CENGAGE L
  • Intermediate Accounting: Reporting And Analysis
    Accounting
    ISBN:9781337788281
    Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
    Publisher:Cengage Learning
    Individual Income Taxes
    Accounting
    ISBN:9780357109731
    Author:Hoffman
    Publisher:CENGAGE LEARNING - CONSIGNMENT
    SWFT Individual Income Taxes
    Accounting
    ISBN:9780357391365
    Author:YOUNG
    Publisher:Cengage
    CONCEPTS IN FED.TAX., 2020-W/ACCESS
    Accounting
    ISBN:9780357110362
    Author:Murphy
    Publisher:CENGAGE L