Three independent situations follow:

$1.$ In preparing its financial statements, Karim Company estimated and recorded the impact of

the

recent death of its president.

$2.$ Because of a $$flood sale,$$ equipment worth $$300,000$ was purchased by Montigny Company

for only $$200,000.$ The equipment was recorded at $$300,000$ on Montigny$$s books.

$3.$ Vertical Lines Company was on the verge of filing for bankruptcy, but a turnaround in the

economy has resulted in the company being very healthy financially. The company president

insists that the accountant put a note in the financial statements that states the company is a real

going concern now.

Instructions

a$.$ For each of the above situations, determine if the accounting treatment of the situation is

correct or

incorrect. Explain why.

b$.$ If the accounting treatment is incorrect, explain what should be done.