Week 1 discussion requirements: In Week 1 there are two discussion questions. You must provide your ethical position on Preston Enterprises or how to treat the amortization of the patent. Review your peer’s responses and share your own perspective according to GAAP. Let’s help each other understand the concepts and principles.
Discussion Question #1-our initial response should be a minimum of 250 words and be supported by at least one reference from the readings or outside source.
Preston Enterprises uses the direct write-off method of accounting for uncollectible accounts. On October 12, a very large account was written off. The amount was subsequently recovered on December 15. Ray Preston, the owner of the company, instructed the accountant to not make a journal entry for the recovery and to hold the check in his desk until after the first of the year “for tax purposes.”
2. If the December 15 entry is not made, how will it affect Preston’s current year financial statements and what are the possible consequences of holding the check? Please answer the questions in full detail.
Discussion Question #2- our initial response should be a minimum of 250 words and be supported by at least one reference from the readings or outside source.
Creative Solutions purchased a patent from Russell Lazarus, an inventor. At the time of the purchase, the patent had two years remaining. The president of Creative Solutions decided to have the accountant amortize the cost of the patent, $200,000, over 10 years rather than two years. His reasoning was that the $200,000 has already been spent and stockholders might ask a lot of questions about a $100,000 expense showing up on the income statement but probably wouldn’t pay much attention to a $20,000 expense.
1. What is Creative Solutions’ ethical responsibility to the company’s stockholders?
2. According to GAAP, how should the amortization of patents be treated?