9CA_d The following statement is an ex... [FREE SOLUTION]

The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.

Instructions

The following six independent cases present how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.

a) J. D. Long Company takes a physical inventory at year-end for annual financial statement purposes. Inventory and cost of sales reported in the interim quarterly statements are based on estimated gross profit rates, because a physical inventory would result in a cessation of operations. Long Company does have reliable perpetual inventory records.

(Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc.’s operations.

(\(000 omitted)
	2018	2017	2016	2015	2014
Sales revenue	\)20,000	\(16,000	\)14,000	\(6,000	\)4,000
Net income	2,400	14,000	800	700	250
Average total assets	22,000	19,000	11,500	4,200	3,000
Current assets	8,000	6,000	3,000	1,200	1,000
Working capital	3,600	3,200	1,200	500	400
Common shares: Number of shares Outstanding (000) Average market price	2,000 \(9	2,000 \)6	2,000 $4	20 -	20 -

Instructions

Suggest factors to be considered by the board of directors in establishing a dividend policy.

(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.)

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

(Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a \(300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years

BRADBURN CORPORATION BALANCE SHEET MARCH 31
Assets	2018	2017
Cash	\) 18,200	\( 12,500
Notes receivable	148,000	132,000
Accounts receivable (net)	131,800	125,500
Inventories (at cost)	105,000	50,000
Plant & Equipment (net of depreciation)	1,449,000	1,420,500
Total assets	\)1,852,000	\(1,740,500

Liabilities and Stockholders’ Equity
Accounts payable	\) 79,000	\( 91,000
Notes payable	76,000	61,500
Accrued liabilities	9,000	6,000
Common stock (130,000 shares, \)10 par)	1,300,000	1,300,000
Retained earnings*	388,000	282,000
Total liabilities and stockholders’ equity	\(1,852,000	\)1,740,500

*Cash dividends were paid at the rate of $1 per share in the fiscal year 2017 and $2 per share in the fiscal year 2018.


BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31
	2018	2017
Sales revenue	\(3,000,000	\)2,700,000
Cost of goods sold*	1,530,000	1,425,000
Gross margin	1,470,000	1,275,000
Operating expenses	860,000	780,000
Income before income taxes	610,000	495,000
Income taxes (40%)	244,000	198,000
Net income	\( 366,000	\) 297,000

Depreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2017, and 2018, respectively, are included in the cost of goods sold.

Instructions

(a). Compute the following items for Bradburn Corporation.

Acid-test (quick) ratio for fiscal years 2017 and 2018.

(Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2018, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2018, and September 30, 2018. Another note of $6,000 is due on March 31, 2019, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a \(300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years

BRADBURN CORPORATION BALANCE SHEET MARCH 31
Assets	2018	2017
Cash	\) 18,200	\( 12,500
Notes receivable	148,000	132,000
Accounts receivable (net)	131,800	125,500
Inventories (at cost)	105,000	50,000
Plant & Equipment (net of depreciation)	1,449,000	1,420,500
Total assets	\)1,852,000	\(1,740,500

Liabilities and Stockholders’ Equity
Accounts payable	\) 79,000	\( 91,000
Notes payable	76,000	61,500
Accrued liabilities	9,000	6,000
Common stock (130,000 shares, \)10 par)	1,300,000	1,300,000
Retained earnings*	388,000	282,000
Total liabilities and stockholders’ equity	\(1,852,000	\)1,740,500

*Cash dividends were paid at the rate of $1 per share in the fiscal year 2017 and $2 per share in the fiscal year 2018.


BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31
	2018	2017
Sales revenue	\(3,000,000	\)2,700,000
Cost of goods sold*	1,530,000	1,425,000
Gross margin	1,470,000	1,275,000
Operating expenses	860,000	780,000
Income before income taxes	610,000	495,000
Income taxes (40%)	244,000	198,000
Net income	\( 366,000	\) 297,000

*Depreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2017, and 2018, respectively, are included in the cost of goods sold.

Instructions

(a). Compute the following items for Bradburn Corporation.

Current ratio for fiscal years 2017 and 2018.

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Meaning of FASB

Explaining whether it is acceptable under GAAP or not

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