You are hired to review the accounting records of Sheridan
You are hired to review the accounting records of Sheridan Corporation (a public corporation) before it closes its revenue and expense accounts as at December 31, 2014, the end of its current fiscal year. The following information comes to your attention.
1. During the current year, Sheridan Corporation changed its shipment policy from f.o.b. destination to f.o.b shipping point. This would result in an additional $50,000 of revenue being recorded for fiscal 2014.
2. The estimated useful life of its manufacturing equipment was reviewed by management and increased by five years.
This reduced depreciation expense by$50,000 during fiscal 2014.
3. When the statement of financial position was prepared, detailed information about the amount of cash on deposit in each of several banks was omitted. Only the total amount of cash under a caption "Cash in banks" was presented.
4. During the current year, Sheridan Corporation purchased an undeveloped piece of land for $320,000. The company spent $80,000 on subdividing the land and getting it ready for sale. A property appraisal at the end of the year indicated that the land was now worth $500,000. Although none of the lots was sold, the company recognized revenue of $180,000, less related expenses of $80,000, for a net income on the project of$100,000. The company has historically used the cost model for this type of property.
5. For several years, the company used the FIFO method for inventory valuation purposes. During the current year, the president noted that all the other companies in the industry had switched to the moving average method. The company decided not to switch to moving average because net income would decrease by $830,000.
6. During fiscal 2014, new government legislation was passed requiring companies like Sheridan to install additional health and safety devices in their offices by 2019. Although Sheridan does not intend to retrofit the required new devices until 2019, an accrual for $375,500 has been established in the year-end financial statements for the future installation costs.
7. To maintain customer goodwill, Sheridan voluntarily recalled some products during the year. Sheridan has not established an accrual and is recording the returns as they happen.
State whether or not you agree with each of the accounting decisions made by Sheridan Corporation. Explain your reasoning and, wherever possible, support your answers by referring to the generally accepted accounting principles that apply to the circumstances.
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