Your public accounting firm has been hired to review the accounting records of Savannah Corporation (a public corporation) before it closes its revenue and expense accounts as at December 31, 2015, the end of its current fiscal year. The following information comes to your attention.

1). During the 2015 fiscal year, Savannah Corporation launched a new product. Launch promotion and advertising costs of $2,400,000 were incurred. The company expects the product to reach a critical mass in terms of sales in 3 years, and thus decided to defer the cost over three years.

2). During the current year, Savannah Corporation changed its shipment policy from f.o.b. destination to f.o.b shipping point. This would result in an additional $70,000 of income being recorded for fiscal 2015.

3). The estimated useful life of its manufacturing equipment was reviewed by management and increased by five years, representing the excellent condition of the equipment. This reduced depreciation expense by $70,000 during fiscal 2015.

4). Savannah Corp maintains accounts with several banks. When the statement of financial position was prepared, detailed information about the amount of cash on deposit in each of the several banks was omitted. Only the total amount of cash of $450,000 was presented under a caption "Cash in banks".

5). During the current year, Savannah Corporation purchased an undeveloped piece of land for $520,000. The company spent $80,000 on subdividing the land and getting it ready for sale. A property appraisal at the end of the year indicated that the land was now worth $700,000. Although none of the lots was sold, the company recognized revenue of $180,000, less related expenses of $80,000, for a net income on the project of $100,000. The company has historically used the cost model for this type of property.

6). For several years, the company used the FIFO method for inventory valuation purposes. During the current year, the president noted that all the other companies in the industry had switched to the moving average method. The company decided not to switch to moving average because net income would decrease by $600,000.

7). During fiscal 2015, new government legislation was passed requiring companies like Savannah to install additional health and safety devices in their offices by 2019. Although Savannah does not intend to retrofit the required new devices until 2019, an accrual for $900,000 has been established in the year-end financial statements for the future installation costs.

8). To maintain customer goodwill, Savannah voluntarily recalled some products during the year. Savannah has not established an accrual and is recording the returns as they happen. Management expects to receive $1,500,000 worth of goods in the recall.

9). Savannah Corporation sold a geographic segment at a gain of $200,000 during 2015, and reposted the gain under "discontinued operations". The sales revenue and expenses of the geographic segment to the date of sale amounted to $325,000 and $175,000 respectively. These amounts have been included in the Net Sales and

Expenses under continuing operations.

10).During 2015, Savannah Corporation was sued by a competitor for $15,000,000. Savannah's lawyers are confident that the lawsuit will be quashed in court, and that an out-of-court settlement would cost about $1,000,000. However, Savannah's management decided to set up a litigation liability of $15 million, in order to be prudent.

Required:

Write a memo to the Partner in charge of the audit stating whether or not you agree with each of the accounting decisions made by Savannah Corporation. Explain your reasoning and, wherever possible, support your answers by referring to the generally accepted accounting principles that apply to the circumstances. Number your responses to correspond to the issues identified above.

Please refer to the following for examples of how to write a memo: http://people.umass.edu/pwtc/tw/memoformat.html https://owl.english.purdue.edu/owl/resource/590/04/ http://www.uc.edu/content/dam/uc/aess/docs/LACResources/MEMO_template%20and% 20tips_5_29_2012.pdf