You, the ethical accountant, are the new controller at ProVision Corporation. 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 been considering a move to IFRS, effective for the 2020 financial statements. 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. 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. Warranties similar to these are available for sale for $75. (Assume both the assurance-type and service-type approaches are alternatives.) 

2. ProVision's retail division rents space from Meadow Malls. ProVision pays a rental fee of $6,000 per month plus 5% of the amount of yearly retail profits over $500,000. ProVision's CEO, Burt Wilson, tells you that he had instructed the previous accountant to increase the estimate of bad debt expense and warranty costs in order to keep the retail division's profits at $475,000. 

3. ProVision's lawyer, Roberta Dowski, 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. In addition, as a result of the production process, there are cleanup costs incurred, estimated to be $5,000 per month during production, which will be totally paid (estimated in total to be $600,000) when the equipment is removed. (The appropriate discount rate to be used for determining the present value of the cash flows is 0.5% per month.) 

4. ProVision is the defendant in a patent infringement lawsuit filed by Heidi Golder over ProVision's use of a hydraulic compressor in several of its products. Roberta Dowski 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 settlement. Although the exact amount is not known, the lawyer has been able to assign probabilities and expected payment amounts as follows: 20% probability that the settlement will be $5 million, 35% probability that the settlement will be $3 million, and 45% that no settlement will be required.

Instructions 

a. In the form of a memorandum to the CFO, address each of the above issues. Explain what the problem is and what choices the company has to report these liabilities under ASPE and IFRS. Prepare the journal entries that would be required under adoption of either standard. Explain any differences in the reported income under the various approaches. 

b. Identify and explain any issues where you consider an ethical perspective is particularly important. Suggest what should be done.