Question

1. A company expensed the acquisition of a $100,000 parcel of land three years ago. What SFP balances are incorrect, ignoring income tax? When would this situation self-correct? 2. An internal auditor has discovered that in the previous year, her company accidentally applied the estimation technique for doubtful accounts "upside down," assigning the greatest risk of default to the newest accounts receivable and the lowest risk of default to the oldest accounts. This resulted in a very large charge of $5 million for doubtful accounts in that year instead of the $1.5 million that a proper estimate would have yielded. In the current year, the technique was applied correctly and the appropriate adjustment was made to the allowance account. What action should the company take, if any, to correct this estimation error?

          1. A company expensed the acquisition of a $100,000 parcel of land three years ago. What SFP balances are
incorrect, ignoring income tax? When would this situation self-correct?
2. An internal auditor has discovered that in the previous year, her company accidentally applied the estimation
technique for doubtful accounts "upside down," assigning the greatest risk of default to the newest accounts
receivable and the lowest risk of default to the oldest accounts. This resulted in a very large charge of $5 million for
doubtful accounts in that year instead of the $1.5 million that a proper estimate would have yielded. In the current
year, the technique was applied correctly and the appropriate adjustment was made to the allowance account. What
action should the company take, if any, to correct this estimation error?

1. A company expensed the acquisition of a 100,000 parcel of land three years ago. What SFP balances are
incorrect, ignoring income tax? When would this situation self-correct?
2. An internal auditor has discovered that in the previous year, her company accidentally applied the estimation
technique for doubtful accounts "upside down," assigning the greatest risk of default to the newest accounts
receivable and the lowest risk of default to the oldest accounts. This resulted in a very large charge of5 million for
doubtful accounts in that year instead of the 1.5 million that a proper estimate would have yielded. In the current
year, the technique was applied correctly and the appropriate adjustment was made to the allowance account. What
action should the company take, if any, to correct this estimation error?

Added by Madison B.

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