5Q The following information was de... [FREE SOLUTION]

Chapter 24: 5Q (page 1445)

The following information was described in a note of Canon Packing Co.
鈥淒uring August, Holland Products Corporation purchased 311,003 shares of the Company鈥檚 common stock which constitutes approximately 35% of the stock outstanding. Holland has since obtained representation on the Board of Directors.鈥�
鈥淎n 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.鈥�
Why is this information disclosed?

Short Answer

Expert verified

There is a material effect by Holland Products Corporation that needs to be disclosed.

Step by step solution

Meaning of Disclosure of Principle

The full disclosure principle is meant to share critical and material budgetary data with the outside world. Since outsiders do not know the points of interest of the company's business deals, contracts, and advances, it is difficult to estimate the substance.

Explaining the reason for the disclosure

Transactions between related parties are disclosed to guarantee that clients of financial statements understand the fundamental nature of certain exchanges. Since it is routinely difficult to legitimately separate financial material from related party transactions, disclosure is widely used in this area.

The disclosure is required by Holland to propose the purchase of a substantial portion of the company's common stock as well as the use of a Holland affiliate to act as a nutrition broker.

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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)

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Short Answer

Step by step solution

Meaning of Disclosure of Principle

Explaining the reason for the disclosure

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