The accounting treatment or statement presentation of various items is discussed below. The items pertain to unrelated businesses.

Instructions

Indicate in each case whether the item has been handled in accordance with generally accepted accounting principles. If so, indicate which of the basic concepts has been followed. If not, indicate which concept has been violated and tell how the item should have been recorded or presented.

1. On December 31, 2015, Williamson Corporation valued its inventory according to an acceptable accounting method. On December 31, 2016, the inventory was valued by a different but also acceptable method, and on December 31, 2017, the inventory was valued by the method that was used in 2015.

2. Polk Manufacturing Company makes air cleaning units. The cost of manufacturing a particular unit is $640. However, when the inventory amounts are computed for the balance sheet, the amount used for this unit is $900, the normal selling price.

3. In 2016, Delight Bakeries had sales of $44 million, all on credit. Statistics of the company for prior years show that losses from uncollectible accounts are equal to about 1.5 percent of sales each year. However, Delight Bakeries charges off a loss from uncollectible accounts only when a specific account is found to be uncollectible.

4. On October 1, 2016, Young Manufacturing Company purchased some highly specialized, custom-made equipment for $950,000. Since the equipment is of no use to anyone else and has no salvage value, it was recorded in the asset account at $1. The equipment is projected to be used regularly in the business until the equipment wears out, approximately six years from the date of its purchase.

5. Each year The Land Development Company values its investments in land at the current market price.

6. Included on the balance sheet of Soothing Massage Center is the personal automobile of Mary Smith, the owner.

Analyze: If the equipment described in item 4 is depreciated using the straight-line method and has no salvage value, what amount should be charged to expense for the year ended December 31, 2016?