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 2014 , 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 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