McMillan Industries Ltd. reports the following transactions and events for fiscal 2020 and 2021.
a. On January 11, 2021, there was a fire and the company had insufficient fire insurance. As such a material loss will result and operations will be curtailed for the next six months.
b. The allowance for doubtful accounts (ADA)was increased in 2020 due to deteriorating economic conditions. Using the old estimate, ADA would have been $171,000. The new estimate is $184,000.
c. On December 30, 2020, there was a significant decrease of $15,000 in the market price of some inventory due to new technology. The market price is $15,000 lower than the carrying values used in fiscal 2020 statements. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
d. A new competitor entered the marketplace in March 2021; this will likely reduce 2021 revenues and net income.
e. In January 2021, the accountant recorded $17,000 for sales made on credit on December 28, 2020.
f. The revenue recognition policy was changed in 2020. The result is a decrease in 2019 revenue by $40,200 and a decrease in 2020 revenue by $60,300 relative to the amounts under the old policy.
g. New technology made some equipment obsolete on January 26, 2021; the fair market and salvage value have decreased by 50%. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
h. A major client unexpectedly went bankrupt on January 20, 2021. The company received 10% of the value of the accounts receivable as full and final settlement on February 20, 2021. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
i. The company has not previously needed to accrue for warranties. A new consumer protection law comes into effect in June 2021, giving buyers a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
Required:
For each event, determine whether it requires note disclosure or an adjustment to the 2020 financial statements. Ignore income taxes. Use the following table for your response. Justify your recommendations.
$$\begin{array}{l}
\text { Effects in 2020, if any, (increase/decrease/no effect) }\
\begin{array} { | l | c | c | c | }
\hline \text { Accounting requirement/explanation } & \begin{array} { l }
\text { Assets or } \
\text { liabilities }
\end{array} & \text { Equity } & \text { Income } \
\hline & & & \
\hline & & & \
\hline & & & \
\hline
\end{array}
\end{array}$$

Question

McMillan Industries Ltd. reports the following transactions and events for fiscal 2020 and 2021.
a. On January 11, 2021, there was a fire and the company had insufficient fire insurance. As such a material loss will result and operations will be curtailed for the next six months.
b. The allowance for doubtful accounts (ADA)was increased in 2020 due to deteriorating economic conditions. Using the old estimate, ADA would have been $171,000. The new estimate is $184,000.
c. On December 30, 2020, there was a significant decrease of $15,000 in the market price of some inventory due to new technology. The market price is $15,000 lower than the carrying values used in fiscal 2020 statements. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
d. A new competitor entered the marketplace in March 2021; this will likely reduce 2021 revenues and net income.
e. In January 2021, the accountant recorded $17,000 for sales made on credit on December 28, 2020.
f. The revenue recognition policy was changed in 2020. The result is a decrease in 2019 revenue by $40,200 and a decrease in 2020 revenue by $60,300 relative to the amounts under the old policy.
g. New technology made some equipment obsolete on January 26, 2021; the fair market and salvage value have decreased by 50%. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
h. A major client unexpectedly went bankrupt on January 20, 2021. The company received 10% of the value of the accounts receivable as full and final settlement on February 20, 2021. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
i. The company has not previously needed to accrue for warranties. A new consumer protection law comes into effect in June 2021, giving buyers a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
Required:
For each event, determine whether it requires note disclosure or an adjustment to the 2020 financial statements. Ignore income taxes. Use the following table for your response. Justify your recommendations.
$$\begin{array}{l}
\text { Effects in 2020, if any, (increase/decrease/no effect) }\
\begin{array} { | l | c | c | c | } 
\hline \text { Accounting requirement/explanation } & \begin{array} { l } 
\text { Assets or } \
\text { liabilities }
\end{array} & \text { Equity } & \text { Income } \
\hline & & & \
\hline & & & \
\hline & & & \
\hline
\end{array}
\end{array}$$

Quizplus · Accepted Answer

The Answer of McMillan Industries Ltd. reports the following transactions and events for fiscal 2020 and 2021.
a. On January 11, 2021, there was a fire and the company had insufficient fire insurance. As such a material loss will result and operations will be curtailed for the next six months.
b. The allowance for doubtful accounts (ADA)was increased in 2020 due to deteriorating economic conditions. Using the old estimate, ADA would have been $171,000. The new estimate is $184,000.
c. On December 30, 2020, there was a significant decrease of $15,000 in the market price of some inventory due to new technology. The market price is $15,000 lower than the carrying values used in fiscal 2020 statements. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
d. A new competitor entered the marketplace in March 2021; this will likely reduce 2021 revenues and net income.
e. In January 2021, the accountant recorded $17,000 for sales made on credit on December 28, 2020.
f. The revenue recognition policy was changed in 2020. The result is a decrease in 2019 revenue by $40,200 and a decrease in 2020 revenue by $60,300 relative to the amounts under the old policy.
g. New technology made some equipment obsolete on January 26, 2021; the fair market and salvage value have decreased by 50%. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
h. A major client unexpectedly went bankrupt on January 20, 2021. The company received 10% of the value of the accounts receivable as full and final settlement on February 20, 2021. This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
i. The company has not previously needed to accrue for warranties. A new consumer protection law comes into effect in June 2021, giving buyers a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
Required:
For each event, determine whether it requires note disclosure or an adjustment to the 2020 financial statements. Ignore income taxes. Use the following table for your response. Justify your recommendations.
$$\begin{array}{l}
\text { Effects in 2020, if any, (increase/decrease/no effect) }\
\begin{array} { | l | c | c | c | } 
\hline \text { Accounting requirement/explanation } & \begin{array} { l } 
\text { Assets or } \
\text { liabilities }
\end{array} & \text { Equity } & \text { Income } \
\hline & & & \
\hline & & & \
\hline & & & \
\hline
\end{array}
\end{array}$$