Question

At the end of the year, the Chief Financial Officer (CFO) of Major Industries has been asked by the company's president to prepare financial statements. Initial calculations show the company has: • Total revenues for the year of $750,000 • Total expenses for the year of $400,000 The CFO then determines that six additional adjustments to expenses are needed based on estimated future outcomes. For each of these adjustments, the CFO's estimated ranges of possible outcomes (high and low), as well as the most likely outcome (middle), are shown in the graphs below. Aggressive Versus Conservative Accounting Practices $60,000 T $55,000 $50,000 T $47,000 $45,000 I $48,000 $42,000 $40,000 T $38,000 $36,000 $33,000 $34,000 $30,000 + $28,000 +$28,000 $24,000 T $25,000 $20,000 $19,000 $15,000 + $15,000 $10,000 $0 $0 $0 Estimated future uncollectible accounts Estimated future selling price of ending inventory Estimated future residual value of equipment Estimated future Estimated future Estimated future cash flows of warranty costs lawsuit costs equipment

Answer 1

I will be answering all the ones that are incorrect. Feel free to ask questions in the comment section.

Before we begin, let us understand the concept of AGGRESSIVE vs CONSERVATIVE

Conservative refers to the conservatism principle. It means that a business should anticipate all its possible losses but NOT THE GAINS.

In other words, a CONSERVATIVE CFO will always have an approach that would LOWER the Net Income since expenses would be high and income/gains would be low.

Aggressive CFO will aim to be aggressive about controlling the costs and increasing the Net Income

Required 2

An aggressive CFO would report estimated future uncollected account of $ 24,000 because this would mean lowest expense and highest income.

Required 4

Higher the Residual value, LOWER would be the Depreciation. Lower depreciation would mean higher Net Income. An aggressive CFO would want higher Net Income. So Residual Value would be $ 25,000. This means depreciation would be $ 15,000.

Required 5

Since the future value is $ 28,000 which is more than the current carrying value, the impairment loss would be nothing. or would be $ 0.

Required 7

An aggressive CFO would want lowest loss. So it'd be $ 34,000

Required 8

If CFO is aggressive, NET INCOME would be HIGHER

Answer 2

The answer for 7 is $0.