Acc 537 STUDY Great Stories /acc537study.com Acc 537 STUDY Great Stories /acc537study.com | Page 14

www.acc537study.com
This Tutorial contains both Solution and Presentation
CA22-4 (Analysis of Various Accounting Changes and Errors)
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
2014.
1. In 2014, 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 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