Chapter 24: Question 1IFRS (page 1467)
Where can authoritative IFRS be found related to the various disclosure issues discussed in the chapter?
IAS 1, IAS 24, IAS 10, IFRS 8, and IAS 34 are discussed in the chapter.
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(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.)
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
What type of disclosure or accounting do you believe is necessary for the following items?
a) Because of a general increase in the number of labor disputes and strikes, both within and outside the industry, there is an increased likelihood that a company will suffer a costly strike in the near future.
b) A company reports a material unusual and infrequent loss on the income statement. No other mention is made of this item in the annual report.
c) A company expects to recover a substantial amount in connection with a pending refund claim for a prior year’s taxes. Although the claim is being contested, counsel for the company has confirmed the client’s expectation of recovery.
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.
Instructions
What effect do these subsequent events have on 2017 net income?
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.
d) Gansner Company realized a large gain on the sale of investments at the beginning of the second quarter. The company wants to report one-third of the gain in each of the remaining quarters.
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