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 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 situations .