Chapter 2, Problem 2.7BE

The Richards Company paid for a five-year extended warranty on all of their equipment on March 1, 2019 costing $540,000 that went into effect immediately. The fiscal year is the calendar year. what if Richards mistakenly or purposely charged the entire total as an expense in 2019? Assuming that all other accounting during the year had been performed correctly, i.e. in a consistent manner under GAAP (Generally Accepted Accounting Principles), in what ways would this error affect overall totals for 2019 of the six items below. No dollar figures are required in this table. Just place one check mark in each column to identify the impact of this misclassification on that category. Impact On Reported Figures For 2019 if the total payment had been expensed when paid. (Place One Check Mark in Each Column Below) Owners' Assets Liabilities Equity (Retained Earnings) Impact Revenues Expenses Income Overstated Understated No Effect

The following are three independent situations. 1.   Hairston Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Hairston’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Hairston’s liability for stamp redemptions was $13,000,000 at ­December 31, 2019. Additional information for 2020 is as follows. Stamp service revenue from stamps sold to licensees0000      $9,500,000 Cost of redemptions (stamps sold prior to 1/1/20)0000 6,000,000 c.   If all the stamps sold in 2020 were presented for redemption in 2021, the redemption cost would be $5,200,000. What amount should Hairston report as a liability for stamp redemptions at December 31, 2020? 2.   In packages of its products, Burnitz Inc. includes coupons that may be presented at retail stores to obtain discounts on other Burnitz products. Retailers are reimbursed for the face amount of coupons redeemed plus 10%…

Presented below are three independent situations.1. Novak Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Novak’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Novak’s liability for stamp redemptions was $14,086,200 at December 31, 2019. Additional information for 2020 is as follows. Stamp service revenue from stamps sold to licensees   $8,609,200 Cost of redemptions (stamps sold prior to 1/1/20)   5,666,400 If all the stamps sold in 2020 were presented for redemption in 2021, the redemption cost would be $5,420,400. What amount should Novak report as a liability for stamp redemptions at December 31, 2020? Liability for stamp redemptions at December 31, 2020   $ 2. In packages of its products, Splish Inc. includes coupons that may be presented at retail stores to obtain discounts on other Splish products. Retailers are reimbursed for the face…