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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 2014, 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 2014, because of a production breakthrough,
it is now estimated that 1/2 of 1% of sales is sufficient. In 2012 and 2013,
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 2014, 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 2012 income by $65,000 and increase 2013
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