24 Full Disclosure in Financial Reporting PROBLEMS 24
PROBLEMS
P24-1 (L02) (Subsequent Events) Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2017. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2012. The client provides you with the following information...
Instructions
Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.
P24-2 (L02) (Segmented Reporting) Cineplex Corporation is a diversified company that operates in five different industries:
A, B, C, D, and E. The following information relating to each segment is available for 2018...
Sales of segments B and C included intersegment sales of $20,000 and $100,000, respectively.
Instructions
(a) Determine which of the segments are reportable based on the:
(1) Revenue test.
(2) Operating profit (loss) test.
(3) Identifiable assets test.
(b) Prepare the necessary disclosures required by GAAP.
*P 24-3 (L06,8) EXCEL GROUPWORK (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.
…
Instructions
(a) Compute the following items for Bradburn Corporation.
(1) Current ratio for fiscal years 2017 and 2018.
(2) Acid-test (quick) ratio for fiscal years 2017 and 2018.
(3) Inventory turnover for fiscal year 2018.
(4) Return on assets for fiscal years 2017 and 2018. (Assume total assets were $1,688,500 at 3/31/16.)
(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2017 to 2018.
(b) Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown’s request for a time extension on Bradburn’s notes.
(c) Assume that the percentage changes experienced in fiscal year 2018 as compared with fiscal year 2017 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn’s desire to finance the plant expansion from internally generated funds realistic? Discuss.
(d) Should Topeka National Bank grant the extension on Bradburn’s notes considering Daniel Brown’s statement about financing the plant expansion through internally generated funds? Discuss.
*P 24-4 (L09) EXCEL (Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company...
Instructions
(Round to two decimal places.)
(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity.
(b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.
(c) Of what value is the additional information provided in part (a)?
(d) Of what value is the additional information provided in part (b)?
* P24-5 (L06) WRITING (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. operations.
($000 omitted)…
Instructions
(a) Suggest factors to be considered by the board of directors in establishing a dividend policy.
(b) Compute the return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc.
(c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.
