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Chapter 24: 4CA_3 (page 1454)

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.

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Most popular questions from this chapter

Madrasah Corporation issued its financial statements for the year ended December 31, 2017, on March 10, 2018. The following events took place early in 2018.

  1. On January 10, 10,000 shares of \(5 par value common stock were issued at \)66 per share.
  2. On March 1, Madrasah determined after negotiations with the Internal Revenue Service that income taxes payable for 2017 should be \(1,270,000. On December 31, 2017, income taxes payable were recorded at \)1,100,000.

Instructions

Discuss how the preceding post-balance-sheet events should be reflected in the 2017 financial statements.

Differential reporting for small- and medium-sized entities:

a) is required for all companies less than a certain size.

b) omits accounting topics not relevant for SMEs, such as earnings per share, and interim and segment reporting.

c) has different rules for topics such as earnings per share, and interim and segment reporting.

d) requires significantly more disclosures, since more items are not recognized in the financial statements.

(Post-Balance-Sheet Events) For each of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.

  1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end.
  2. Introduction of a new product line.
  3. Loss of assembly plant due to fire.
  4. Sale of a significant portion of the company’s assets.
  5. Retirement of the company president.
  6. Prolonged employee strike.
  7. Loss of a significant customer.
  8. Issuance of a significant number of shares of common stock.
  9. Material loss on a year-end receivable because of a customer’s bankruptcy.
  10. Hiring of a new president.
  11. Settlement of prior year’s litigation against the company (no loss was accrued).
  12. Merger with another company of comparable size.

An article in the financial press entitled “Important Information in Annual Reports This Year” noted that annual reports include a management’s discussion and analysis section. What would this section contain?

Morlan Corporation is preparing its December 31, 2017, financial statements. Two events that occurred between December 31, 2017, and March 10, 2018, when the statements were authorized for issue, are described below.

  1. A liability, estimated at \(160,000 at December 31, 2017, was settled on February 26, 2018, at \)170,000.
  2. A flood loss of $80,000 occurred on March 1, 2018.

Instructions

What effect do these subsequent events have on 2017 net income?
See all solutions

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