Drew is the accounting and finance manager for a manufacturer. At year-end, he must determine how to account for the company's contingencies. His manager, Mary, objects to Drew's proposal to recognize an expense and a liability for warranty service on units of a new product introduced in the fourth quarter. Mary comments, "There is no way we can estimate th
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Drew is the
Prepare a memorandum for Drew to send to Mary defending his proposal.
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- Dusty Johnson is the accounting and finance manager for a manufacturer. At year-end, he must determine how to account for the company’s contingencies. His manager, Tom Pretti, objects to Johnson’s proposal to recognize an expense and a liability for warranty service on units of a new product introduced in the fourth quarter. Pretti comments, “There’s no way we can estimate this warranty cost. We don’t owe anyone anything until a product fails and it is returned. Let’s report an expense if and when we do any warranty work.” Required Prepare a one-page memorandum for Johnson to send to Pretti defending his proposal.Your client is preparing financial statements to show the bank. You know that he has incurred a refrigeration repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not yet paid the 1,255 bill. Your client is on the accrual basis of accounting. He does not want the refrigeration repair expense on the books as of the end of the month because he wants his profits to look good for the bank. Is your client behaving ethically by suggesting that the refrigeration repair expense not be booked until the 1,255 is paid? Are you behaving ethically if you agree to the clients request? What principle is involved here?Denise Bunch is the sales manager for a tractor supply company. She earns an annual bonus based on sales minus related warranty expenses. Actual warranty expenses have varied over the past 15 years from a low of 2% of sales to a high of 10%. In the past, Bunch has recommended an estimate on the high side of the range in order to be conservative. 1. Does the warranty accrual recommendation create an ethical dilemma for Bunch? If so, explain why.2. What percent would you recommend if you were Bunch. (Justify your answer)
- Brady is hired in 2021 to be the accountant for Anderson Manufacturing, a private company. At the end of 2021, the balance of Accounts Receivable is $29,000. In the past, Anderson has used only the direct write-off method to account for bad debts. Based on a detailed analysis of amounts owed, Brady believes the best estimate of future bad debts is $9,000. If Anderson continues to use the direct write-off method to account for uncollectible accounts, what adjustment, if any, would Brady record at the end of 2021? What adjustment, if any, would Brady record if Anderson instead uses the allowance method to account for uncollectible accounts?The treasurer of Landowska Co. has heard that conservatismis a doctrine that is followed in accounting and,therefore, proposes that several policies be followed thatare conservative in nature. State your opinion with respectto each of the policies listed.(a) The company gives a 2-year warranty to its customerson all products sold. The estimated warranty costs incurred from this year’s sales should be entered asan expense this year instead of an expense in the periodin the future when the warranty is made good.(b) When sales are made on account, there is always uncertaintyabout whether the accounts are collectible.Therefore, the treasurer recommends recording thesale when the cash is received from the customers.(c) A personal liability lawsuit is pending against thecompany. The treasurer believes there is an evenchance that the company will lose the suit and haveto pay damages of $200,000 to $300,000. The treasurerrecommends that a loss be recorded and a liabilitycreated in the amount…Tonya Latirno is a certified public accountant (CPA) and staff accountant for Kennedy and Kennedy, a local CPA firm. It had been the policy of the firm to provide a holiday bonus equal to two weeks’ salary to all employees. The firm’s new management team announced on November 15 that a bonus equal to only one week’s salary would be made available to employees this year. Tonya thought that this policy was unfair because she and her coworkers planned on the full two-week bonus. The two-week bonus had been given for 10 straight years, so it seemed as though the firm had breached an implied commitment. Thus, Tonya decided that she would make up the lost bonus week by working an extra six hours of overtime per week over the next five weeks until the end of the year. Kennedy and Kennedy’s policy is to pay overtime at 150% of straight time.Tonya’s supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at…
- Cameron Bly is a sales manager for an automobile dealership. He earns a bonus each year based on revenue from the number of autos sold in the year less related warranty expenses. Actual warranty expenses have varied over the prior 10 years from a low of 3% of an automobile’s selling price to a high of 10%. In the past, Bly has tended to estimate warranty expenses on the high end to be conservative. He must work with the dealership’s accountant at year-end to arrive at the warranty expense accrual for cars sold each year. 1. Does the warranty accrual decision create any ethical dilemma for Bly? 2. Because warranty expenses vary, what percent do you think Bly should choose for the current year? Justify your response.Tonya is a staff accountant for a local CPA firm. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks' salary. On November 15, the firm's management team announced that there would be no annual bonus this year. Because of the firm's long history of giving a year-end bonus, Tonya and her co-workers had come to expect the bonus and felt that the CPA firm owed the money to the employees. Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year because overtime hours are paid at "time and a half" rates. Tonya's supervisor was surprised to see overtime being reported, because there's usually not an increase in client service at the end of the calendar year. However, the overtime was not questioned, because employees are on the "honor system" in reporting their work hours. What are your thoughts on this situation?To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Daun purchased the stereo systems for $260,000 and sold them for $370,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 2 percent of sales. During the year, she paid $4,020 cash to replace a defective tuner. Requireda. Prepare an income statement and statement of cash flows for Daun’s first year of operation. b. Based on the information given, what is Daun’s total warranties liability at the end of the accounting period?
- To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Deloch purchased the stereo systems for $166,000 and sold them for $312,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 4 percent of sales. During the year, she paid $2,560 cash to replace a defective tuner. Required a-1. Prepare an income statement for Deloch's first year of operation. a-2. Prepare a statement of cash flows for Deloch's first year of operation. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Prepare an income statement for Deloch's first year of operation. DELOCH STEREOS Income StatementTo support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Deloch purchased the stereo systems for $145,000 and sold them for $272,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 6 percent of sales. During the year, she paid $2,350 cash to replace a defective tuner. Required a-1. Prepare an income statement for Deloch's first year of operation. a-2. Prepare a statement of cash flows for Deloch's first year of operation.To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Deloch purchased the stereo systems for $157,000 and sold them for $294,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 3 percent of sales. During the year, she paid $1,970 cash to replace a defective tuner. Required a-1. Prepare an income statement for Deloch's first year of operation. a-2. Prepare a statement of cash flows for Deloch's first year of operation. X Answer is not complete. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Prepare a statement of cash flows for Deloch's first year of operation. (Cash outflows should be indicated with a minus sign.) DELOCH STEREOS Statement of Cash Flows
