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Chapter 24: 15Q (page 1445)

The following comment appeared in the financial press: 鈥淚nadequate financial disclosure, particularly with respect to how management views the future and its role in the marketplace, has always been a stone in the shoe. After all, if you don鈥檛 know how a company views the future, how can you judge the worth of its corporate strategy?鈥� What are some arguments for reporting earnings forecasts?

Short Answer

Expert verified

Earnings forecasting should be done with proper guidance because figures can be missed, controlled, or misunderstood, so they should be given their due consistency.

Step by step solution

01

Meaning of Financial Disclosure

Financial disclosures refer to the framework under which one or more categories of open authorities in a given nation are required by law to disclose data about their resources and business practices.

02

Explaining arguments for reporting earning forecast  

Arguments for providing earnings forecasts are as follows:

a) Investment decisions are made on the basis of future wishes; in this way, information about the future encourages better choices.

b) The figures are already transmitted carelessly. This circumstance should be directed at ensuring that estimates are available to all financial experts.

c) The present circumstances change so rapidly that the authentic information is not satisfactory for forecasting.

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

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鈥檚 taxes. Although the claim is being contested, counsel for the company has confirmed the client鈥檚 expectation of recovery.

Jane Ellerby and Sam Callison are discussing the recent fraud that occurred at LowRental Leasing, Inc. The fraud involved the improper reporting of revenue to ensure that the company would have income in excess of $1 million. What is fraudulent financial reporting, and how does it differ from an embezzlement of company funds?

Where can authoritative IFRS be found related to the various disclosure issues discussed in the chapter?

Carlton Company is involved in four separate industries. The following information is available for each of the four industries.

Operating Segment
Total Revenue
Operating Profit (Loss)
Identifiable Assets
W
 \( 60,000
15,000
\)167,000
X
 10,000
 3,000
 83,000
Y
 23,000
 (2,000)
 21,000
Z
 9,000
 1,000
 19,000

\(102,000
\)17,000
$290,000

Instructions

Determine which of the operating segments are reportable based on the:

c) Identifiable assets test.
See all solutions

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