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Chapter 24: Question 4IFRS (page 1467)

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.

Short Answer

Expert verified

No alteration should be reported for issued shares. Keystone should increase income tax by $220,000.

Step by step solution

01

Meaning financial statement

A company's financial statements provide a precise picture of its financial success. They refer to it as assets and liabilities rather than profit and loss. It's the same as it was at the end of all accounting forms where these explanations might be presented.

02

Discussing the preceding subsequent events that should be reflected in the 2017 financial statements

1. The issuance of standard offers is a case of a consequent event which gives proof of almost conditions that did not exist at the explanation of the financial position date but emerged consequent to that date. Subsequently, no alteration to the financial statements is recorded. In any case, this event ought to be disclosed either in a note, a supplemental plan, or even proforma financial data.

2. The changed estimate of income taxes payable is an illustration of a consequent event that gives extra proof around conditions that existed at the explanation of the financial position date. The pay assessment liability existed on December 31, 2017, but the sum was not certain.

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Most popular questions from this chapter

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.

e) Fredonia Company has estimated its annual audit fee. It plans to pro rate this expense equally over all four quarters.

Answer each of the questions in the following unrelated situations.

c) A company has current assets of \(90,000 (of which \)40,000 is inventory and prepaid items) and current liabilities of \(40,000. What is the current ratio? What is the acid-test ratio? If the company borrows \)15,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?

The following information was described in a note of Canon Packing Co.

“During August, Holland Products Corporation purchased 311,003 shares of the Company’s common stock which constitutes approximately 35% of the stock outstanding. Holland has since obtained representation on the Board of Directors.”

“An affiliate of Holland Products Corporation acts as a food broker for Canon Packing in the greater New York City marketing area. The commissions for such services after August amounted to approximately $20,000.”

Why is this information disclosed?

What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years?

Subsequent events are reviewed through which date under IFRS?

a) Statement of financial position date.

b) Sixty days after the year-end date.

c) Date of independent auditor’s opinion.

d) Authorization date of the financial statements

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