Reference no: EM132853812
Intermediate Accounting
Case #1 - Liabilities
Adapted from Intermediate Accounting - Kieso, 10thCanadian edition
You, the ethical accountant, are the new controller at ProVision Corporation - congratulations on your new job! It is January 2021 and you are currently preparing the December 31, 2020 financial statements. ProVision manufactures household appliances. It is a private company and has made the choice to follow ASPE (Accounting Standards for Private Entity). During your review of the accounts and discussion with the lawyer, you discover the following possible liabilities.
1. ProVision began production of a new dishwasher in June 2020, and by December 31, 2020 had sold 100,000 units to various retailers for $500 each. Each dishwasher is sold with a one-year warranty included. Warranties similar to these are available for sale for $75. The company estimates that its warranty expense per dishwasher will amount to $25.
By year end, the company had already paid out $1 million in warranty expenditures on 35,000 units. ProVision's records currently show a warranty expense of $1 million for 2020.
2. ProVision's retail division rents space from Park Malls. ProVision pays a rental fee of $6,000 per month plus 5% on the amount of yearly profits that is over $500,000. ProVision's CEO,Burt D. Washer, tells you that he had instructed the previous accountant to increase the estimate of bad debts expense and several other estimates in order to keep the retail division's profits at $475,000.
3. ProVision's lawyer, Anna Turney, informed you that ProVision has a legal obligation to dismantle and remove the equipment used to produce the dishwashers and clean up the rental premises as part of the lease agreement. The equipment, costing $10 million, was put into production on June 1, 2020 and has a useful life of 120 months. The dismantling and removal costs are estimated to be $3 million.
4. ProVision is the defendant in a patent infringement lawsuit filed by Sue Case over ProVision's use of a hydraulic compressor in several of its products. Anna Turney claims that, if the suit goes against ProVision, the loss may be as much as $5 million. It is more likely than not that ProVision will have to pay some amount on the settlement. Although the exact amount is not known, the lawyer has been able to assign probabilities and expected payment amounts as follows (based on Statistics - probability distributions): 20% probability that the settlement will be $5 million, 35% probability that the settlement required will be $3 million, and 45% that no settlement will be required.
Required:
Following the case format, please address each of the possible liabilities above.
Approximately 4 pages total.
Each one should be handled separately - key issue/s, analysis and recommendation sections for each separate possible liability.
Case #2 - Leases
Adapted from Intermediate Accounting - Kieso, 10thCanadian edition
Copy Corporation entered into a lease agreement for 20 photocopy machines for its corporate headquarters. The lease agreement qualifies as an operating lease in all ways except that there is a bargain purchase option. After the four-year lease term, the corporation can purchase each copier for $1,500, when the anticipated market value of each machine will be $3,800.
Glenn Beckitt, one of the chief accountants, thinks the financial statements must recognize the lease agreement as a finance (capital) lease because of the bargain purchase clause. The head accountant, TaraKoba, disagrees: "Although I don't know much about the copiers themselves, there is a way to avoid recording the lease liability." She argues that the corporation might claim that copier technology advances rapidly and that by the end of the lease term - four years in the future - the machines will most likely not be worth the $1,500 bargain price.
Required:
Following the case format, please address 3 primary issues.
Approximately 2 pages total.
Case #3 - Chp 21 - Accounting Errors
From Intermediate Accounting - Kieso, 11th Canadian edition
Required:
Please complete Problem 21-18 page 21-67 to 21-68 in the textbook.
Following the case format, please address each of the possible errors / accounting changes.
Approximately 4 pages total.
Each one should be handled separately - key issue/s, analysis and recommendation sections for each separate possible error / accounting change.
Format for case studies:
Your case should be written in 4 distinct parts / components:
1. Introduction - don't just repeat the question or the case... make me want to read further!
2. Identify the key issues - preferable would be point form - should not be more than a few words or a sentence for each key issue
3. Analysis - analyze the case or question - tell me everything about the topic - careful that you don't start to "recommend" in this section.
4. Recommendations - give me clear, CONFIDENT (no "I think maybe possibly...") recommendations as to what should happen including any "fixes" if applicable.