You are the owner of a lawn service company (LawnCo) that provides grounds and maintenance services to a range of corporate customers. Customers are expected to pay on the first of each month, in advance of receiving services. One of your corporate customers is an eldercare facility whose grounds you have maintained for many years. The customer has not paid for the last three months of services (from October to December 2017); nevertheless, to maintain a positive relationship, your company continued to provide mowing and weed control services to the eldercare facility during that time. Your company ceased providing services in January 2018 and found out in that same month that the eldercare facility filed for bankruptcy in September. Your company now believes that collection of missed payments is extremely unlikely.

Your company has already issued financial statements to lenders for the period ending 12/31/17, which reflected revenue and a corresponding account receivable related to this customer of $10,000 per month for services provided. Those financial statements also reflected the companys standard allowance (reserve) amount on receivables, of 4% of sales. In total, your companys average monthly sales amount to $500,000.

Your ultimate goal is to evaluate whether receipt of this information indicates you have a change in accounting estimate or whether the customers bankruptcy should result in this event being considered an error in previously issued financial statements.

Cite Codification references for each question and provide detailed calculations when necessary in order to receive full credit. As you perform your search for information, document your search following the steps shown in Figure 2.5 on page 47. Attach your Word search document as an Appendix to your responses.

a) Define the two options above, citing the Codification. Then, state arguments in favor of each alternative.

b) Next, describe the accounting treatment (as required by the Codification) for each alternative, then support your explanations with draft general entries.

c) Finally, briefly state which treatment appears to be more appropriate given the circumstances. If you must make any assumptions in reaching this conclusion, state these.

Figure 2-5 on p.47 is

(Step 1) Browse to the topic you expect will be most relevant.

(Step 2) Be sure to check all sources of require reding withing the topic.

(Step 3) Follow all leads (such as to other topics) that appear to be relevant. Sometimes a single accounting issue can involve consideration of multiple Codification topics.

(Step 4) As you go along, copy any potentially relevant guidance you find into a Word document.

(Step 5) Finally, review the guidance you've collected and weed out (from your Word document) sources that appear to be less relevant.

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