/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Question 3IFRS Morlan Corporation is preparing ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 24: Question 3IFRS (page 1467)

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.

  1. A liability, estimated at \(160,000 at December 31, 2017, was settled on February 26, 2018, at \)170,000.
  2. A flood loss of $80,000 occurred on March 1, 2018.

Instructions

What effect do these subsequent events have on 2017 net income?

Short Answer

Expert verified

It should be reported that the net income will decrease by $10,000, and the flood loss does not require alteration.

Step by step solution

01

Meaning Subsequent events

A subsequent event is an accounting term for a money-related transaction that occurs after the completion of the balance sheet for a specified period, but before the company's full set of financial explanations have been made.

02

Explaining types of subsequent events

  1. Net income will diminish by $10,000 ($160,000 鈥�$170,000) as a consequence of the alteration of the liability. The settlement of the risk is the sort of ensuing event which gives extra proof of approximate conditions that existed at the articulation of the financial position date.
  1. The flood loss ($80,000) is an event that gives proof around conditions that did not exist at the explanation of the financial position date but is consequent to that date and does not require alteration of the financial statements.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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鈥攂ut, rats!, even recourse to the Freedom of Information Act didn鈥檛 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鈥攂ut no one was very eager to salute. Even after some of the more objectionable features鈥攃ompulsory corrections and detailed explanations of why the estimates went awry鈥攚ere peeled off the original proposal.

Seemingly, despite the Commission鈥檚 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 鈥淪afe Harbor鈥� 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

  1. Why are corporations concerned about presenting profit forecasts?

Edna Millay Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Millay and the industry averages for firms of similar size are presented below.

Edna Millay

2017 Industry

2015

2016

2017

Averages

Current ratio

2.09

2.27

2.51

2.24

Quick ratio

1.15

1.12

1.19

1.22

Inventory turnover

2.40

2.18

2.02

3.50

Net sales to stockholders鈥� equity

2.71

2.80

2.99

2.85

Return on common stockholders鈥� equity

0.14

0.15

0.17

0.11

Total liabilities to stockholders鈥� equity

1.41

1.37

1.44

0.95

Millay is being reviewed by several entities whose interests vary, and the company鈥檚 financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Millay鈥檚 financial position.

Archibald MacLeish Bank. The bank is processing Millay鈥檚 application for a new 5-year term note. Archibald MacLeish has been Millay鈥檚 banker for several years but must reevaluate the company鈥檚 financial position for each major transaction.

Robert Penn Warren. A brokerage firm specializing in the stock of electronics firms that are sold over-the-counter, Robert Penn Warren must decide if it will include Millay in a new fund being established for sale to Robert Penn Warren鈥檚 clients.

Working Capital Management Committee. This is a committee of Millay鈥檚 management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company鈥檚 working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.

Instructions

a) Describe the analytical use of each of the six ratios presented above.

As a loan analyst for Utrillo Bank, you have been presented with the following information.

Toulouse Co.

Lautrec Co.

Assets

Cash

\(120,000

\) 320,000

Receivables

220,000

302,000

Inventories

570,000

518,000

Total current assets

910,000

1,140,000

Other assets

500,000

612,000

Total assets

\(1,410,000

\)1,752,000

Liabilities and Stockholders鈥� Equity

Current liabilities

\( 305,000

\) 350,000

Long-term liabilities

400,000

500,000

Capital stock and retained earnings

705,000

902,000

Total liabilities and stockholders鈥� equity

\(1,410,000

\)1,752,000

Annual sales

\(930,000

\)1,500,000

Rate of gross profit t on sales

30%

40%

Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. Because your bank has reached its quota for loans of this type, only one of these requests is to be granted.

Instructions

Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.

An annual report of Ford Motor Corporation states, 鈥淣et income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10垄 in the current year and 3垄 in the previous year. . . . As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by 6垄.鈥� What information is provided by this note?

Snider Corporation, a publicly-traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first quarter of the 2017鈥�2018 fiscal year. Snider鈥檚 financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year.

Sales revenue \(60,000,000

Cost of goods sold 36,000,000

Variable selling expenses 1,000,000

Fixed selling expenses 3,000,000

Included in the fixed selling expenses was the single lump-sum payment of \)2,000,000 for television advertisements for the entire year.

Instructions

a) Snider Corporation must issue its quarterly financial statements in accordance with IFRS regarding interim financial reporting.

  1. Explain whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period.
See all solutions

Recommended explanations on Business Studies Textbooks

Startups

Read Explanation

Organizational Communication

Read Explanation

Strategic Analysis

Read Explanation

Business Data Analytics

Read Explanation

Family Business

Read Explanation

Finance Literacy (Business Studies)

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.