You are hired to review the accounting records of Sophia Corporation before it closes its revenue and expense accounts as at December 31, the end of its current fiscal year. The following information comes to your attention.
1) During the current year, Sophia 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 2010.
2) The estimated useful life of its manufacturing equipment was increased by five years. This reduced depreciation expense by $50,000 during fiscal 2010
3)When the balance sheet 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, Sophia 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 were sold, the company recognized revenue of $180,000, less related expenses of $80,000, for net income on the project of $100,000
5) For several years, the company used the FIFO methods 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 o moving average because net income would decrease by $830,000
6) During fiscal 2010, new government legislation was passed requiring companies like Sophia to install additional health and safety devices in their offices by 2015. Although Sophia does not intent to retrofit the required new devices until 2015, an accrual for $375,000 has been established in the year-end financial statements for the future installation costs.
7)To maintain customer goodwill, Sophia voluntarily recalled some products during the year. Sophia has not established an accrual and is recording the returns as they happen.
Instructions:
State whether or not you agree with each of the decisions made by Sophia corporation. Explain your reasoning and wherever possible support your answers by referring to the generally accepted accounting principles that apply to the circumstances.