Superb Professors

The treasurer of Landowska Co. has heard that conservatism is adoctrine that is followed in accounting and, therefore, proposesthat several policies be followed that are conservative in nature.State your opinion with respect to each of the policies listed.(a) The company gives a 2-year warranty to its customers on allproducts sold. The estimated warranty costs incurred from thisyear?s sales should be entered as an expense this year instead ofan expense in the period in the future when the warranty is madegood.(b) When sales are made on account, there is always uncertaintyabout whether the accounts are collectible. Therefore, thetreasurer recommends recording the sale when the cash is receivedfrom the customers.(c) A personal liability lawsuit is pending against the company.The treasurer believes there is an even chance that the companywill lose the suit and have to pay damages of $200,000 to $300,000.The treasurer recommends that a loss be recorded and a liabilitycreated in the amount of $300,000.

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