Illiana Corporation Has Several Accounting Issues with Respect to Its

question 22

Essay

Illiana Corporation has several accounting issues with respect to its interim financial statements for the first quarter of calendar 2014.
Required:
For each of the independent situations given below,state whether or not the method proposed by Illiana is acceptable.Justify each answer with appropriate reasoning.
1.Illiana will not perform a physical inventory at the end of the calendar quarter.It intends to estimate the cost of sales by using the gross profit inventory method.
2.Illiana grants volume discounts to its customers based upon their total annual purchases.The discounts are calculated on a sliding scale ranging from 1% to 8%.The amount of discount applied will progressively increase for a customer as the cumulative purchase total for the customer increases during the year.Illiana will use the average rate of discounts earned for each customer in the prior year as the expected discount rate for the current year.
3.At the beginning of the current quarter,Illiana incurred a large loss on the sale of some of its marketable securities.It intends to distribute the loss evenly to each of the four calendar quarters.
4.Illiana incurs maintenance costs during its year-end holiday shut down,but has minimal maintenance costs during the rest of the year.It intends to deduct one-fourth of the yearly estimated cost on its interim income statement.

---

Definitions:

Self-fulfilling Prophecies

A belief or expectation that influences behaviors in a way that causes the belief to become true.

Perception

The way in which a person views the world.

Equal Employment Opportunity Commission

A U.S. federal agency that enforces laws against workplace discrimination.

Civil Rights Act

A landmark piece of legislation in the United States that outlaws discrimination based on race, color, religion, sex, or national origin.