Question

The notes to financial statements present information on significant accounting policies, complex or special transactions, details of reported amounts, commitments, contingencies, segments, quarterly data, and subsequent events. Indicate which type of note disclosure is illustrated by each of the following notes:

a. The company has agreed to purchase seven EMB-120 aircraft and related spare parts. The aggregate cost of these aircraft is approximately $52,000,150, subject to a cost escalation provision. The aircraft are scheduled to be delivered over the next two fiscal years.

b. The company has deferred certain costs related to major accounting and information systems enhancements that are anticipated to benefit future years. Upon completion, the related cost is amortized over a period not exceeding five years.

c. The company has guaranteed loans and leases of independent distributors approximating $27,500,000 as of December 31 of the current year.

d. An officer of the company is also a director of a major raw material supplier of the company. The amount of raw material purchases from this supplier approximated $595,000 in the current year.

The word bank is the same for each question:

A. Commitment

B. Complex or special transaction

C. Contingency

D. Details of a reported amount

E. Quarterly Data

F. Segment

G. Significant accounting policy

H. Subsequent event

Answer 1

a.The company has agreed to purchase seven EMB-120 aircraft and related spare parts. The aggregate cost of these aircraft is approximately $52,000,150, subject to a cost escalation provision. The aircraft are scheduled to be delivered over the next two fiscal years.

Since the transaction represents company's commitment to purchase seven EMB-120 aircraft and related spare parts, the transaction shall be disclosed under Commitments.

Further, there is a cost escalation provision, hence, the same shall alos be disclosed under C. Contingency.

Hence the answer is A. Commitment and C. Contingency

b. The company has deferred certain costs related to major accounting and information systems enhancements that are anticipated to benefit future years. Upon completion, the related cost is amortized over a period not exceeding five years.

Since this is a specific transaction and not related to day to day operations of the company, it shall be disclosed under "B. Complex or special transaction" under notes to financial statements.

C. The company has guaranteed loans and leases of independent distributors approximating $27,500,000 as of December 31 of the current year.

The transaction has large amount being committed for loans and leases, it has to be disclosed under "A. Commitment"

d. An officer of the company is also a director of a major raw material supplier of the company. The amount of raw material purchases from this supplier approximated $595,000 in the current year.

Since the transaction is with a company where director of the compnay is also director, it is a related party transaction. Hence it has to be disclosed under " Details of a reported amount"