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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.

6) On February 1, 2018, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of \)1,200,000 of preferred stock.

Instructions

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

Short Answer

Expert verified

A new stock issue should be disclosed.

Step by step solution

01

Meaning of Preferred Stocks

Preferred stock is a type of stock that has particular advantages or qualities that common stock does not have. The characteristics that separate preferred stock from ordinary stock may be more limiting and negative than preferences.

02

Explaining the effect in the financial statements

In the footnote of the balance sheet, describe the functions of the new stock issue.

New issues, whether stocks or bonds, are a way for a firm to raise funds. An initial public offering (IPO) is a type of stock offering that allows investors to purchase the stock of a private company for the first time.

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Most popular questions from this chapter

(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 Stockholdersโ€™ 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. Of what value is the additional information provided in part (b)?

Snider Corporation, a publicly-traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first quarter of the 2017โ€“2018 fiscal year. Sniderโ€™s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year.

Sales revenue \(60,000,000

Cost of goods sold 36,000,000

Variable selling expenses 1,000,000

Fixed selling expenses 3,000,000

Included in the fixed selling expenses was the single lump-sum payment of \)2,000,000 for television advertisements for the entire year.

Instructions

a) Snider Corporation must issue its quarterly financial statements in accordance with IFRS regarding interim financial reporting.

  1. Explain whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period.

The controller for Lafayette Inc. recently commented, โ€œIf I have to disclose our segments individually, the only people who will gain are our competitors and the only people that will lose are our present stockholders.โ€ Evaluate this comment.

An article in the financial press entitled โ€œImportant Information in Annual Reports This Yearโ€ noted that annual reports include a managementโ€™s discussion and analysis section. What would this section contain?

What are interim reports? Why are balance sheets often not provided with interim data?

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