Reference no: EM133002740

Heart Burns, Inc. sells Valentine Day cards. When it began its operations it would ship the cards to its customers at the time demand for its merchandise arose, so orders placed in December 20X1 would be shipped in January of 20X2 to be ready for Valentine's Day season in early February. Heart Burns would consummate the sale, pass title and report income from the sales at time of shipment, in year two. However, as the business grew, problems with this system arose and Heart Burns began to ship the Valentine day cards far in advance, perhaps in December of 20X1. Customers resisted because they didn't want to pay personal property tax on inventory item on hand at year end.

To accommodate its customers' concerns, Heart Burns continued its new policy of shipping in December but changed its terms of sale to provide that title to the goods and risk of loss would not pass till January of the following year. Heart Burns would report the gain, not upon shipment in year one, but passage of title in year two.

Problem 1: Did Heart Burns change its method of accounting?