Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

At December 31, 2017, Coburn Corp. has assets of \(10,000,000, liabilities of \)6,000,000, common stock of \(2,000,000 (representing 2,000,000 shares of \)1 par common stock), and retained earnings of \(2,000,000. Net sales for the year 2017 were \)18,000,000, and net income was $800,000. As auditors of this company, you are making a review of subsequent events on February 13, 2018, and you find the following.

3) On January 23, 2018, a strike was called at one of Coburn’s largest plants, which halted 30% of its production. As of today (February 13), the strike has not been settled.

Instructions

State in each case how the 2017 financial statements would be affected, if at all.

Short Answer

Expert verified

No disclosure is required.

Step by step solution

01

Meaning of Work Strike

When a group of workers refuses to work for an organization it is called a work strike. The reason behind the work strike could be low pay rate, working conditions, or maybe internal disputes.

02

Explaining the effect in the financial statements

Since the strikes are considered general knowledge, no disclosure is necessary. On the other hand, many auditors will advocate full disclosure under all circumstances.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to find out what happened to the cheese sandwich—but, rats!, even recourse to the Freedom of Information Act didn’t help. However, the forecast proposal was dusted off, polished up and found quite serviceable. The SEC, indeed, lost no time in running it up the old flagpole—but no one was very eager to salute. Even after some of the more objectionable features—compulsory corrections and detailed explanations of why the estimates went awry—were peeled off the original proposal.

Seemingly, despite the Commission’s smiles and sweet talk, those craven corporations were still afraid that an honest mistake would lead them down the primrose path to consent decrees and class action suits. To lay to rest such qualms, the Commission last week approved a “Safe Harbor” rule that, providing the forecasts were made on a reasonable basis and in good faith, protected corporations from litigation should the projections prove wide of the mark (as only about 99% are apt to do).

Instructions

  1. What are the arguments for preparing profit forecasts?

Keystone Corporation’s financial statements for the year ended December 31, 2017, were authorized for issue on March 10, 2018. The following events took place early in 2018.

  1. On January 10, 10,000 ordinary shares of \(5 par value were issued at \)66 per share.
  2. On March 1, Keystone determined after negotiations with the taxing authorities that income taxes payable for 2017 should be \(1,320,000. At December 31, 2017, income taxes payable were recorded at \)1,100,000.

Instructions

Discuss how the preceding subsequent events should be reflected in the 2017 financial statements.

(Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.

GILMOUR COMPANY

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2018 AND 2017

December 31

2018

2017

Assets

Cash

\( 180,000

\) 275,000

Accounts receivable (net)

220,000

155,000

Short-term investments

270,000

150,000

Inventories

1,060,000

980,000

Prepaid expenses

25,000

25,000

Plant & equipment

2,585,000

1,950,000

Accumulated depreciation

(1,000,000)

(750,000)

\(3,340,000

(2,785,000)

Liabilities and Stockholders’ Equity

Accounts payable

\) 50,000

\( 75,000

Accrued expenses

170,000

200,000

Bonds payable

450,000

190,000

Common stock

2,100,000

1,770,000

Retained earnings

570,000

550,000

\)3,340,000

(2,785,000)

Instructions

(Round to two decimal places.)

  1. Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.

Heartland Company’s budgeted sales and budgeted cost of goods sold for the coming year are \(144,000,000 and \)99,000,000, respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 9 times a year to a level of 12 times per year, compute its expected cost savings for the coming year.

As a loan analyst for Utrillo Bank, you have been presented with the following information.

Toulouse Co.

Lautrec Co.

Assets

Cash

\(120,000

\) 320,000

Receivables

220,000

302,000

Inventories

570,000

518,000

Total current assets

910,000

1,140,000

Other assets

500,000

612,000

Total assets

\(1,410,000

\)1,752,000

Liabilities and Stockholders’ Equity

Current liabilities

\( 305,000

\) 350,000

Long-term liabilities

400,000

500,000

Capital stock and retained earnings

705,000

902,000

Total liabilities and stockholders’ equity

\(1,410,000

\)1,752,000

Annual sales

\(930,000

\)1,500,000

Rate of gross profit t on sales

30%

40%

Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Instructions

Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free