Question

In: Accounting

Listed are five items that may or may not require disclosure in the notes that accompany...

Listed are five items that may or may not require disclosure in the notes that accompany financial statements:

a.) Mandella Construction Co. uses the percentage-of-completion method to recognize revenue on long-term construction contracts. This is one of two acceptable methods of accounting for such projects. Over the life of the project, both methods produce the same overall results, but the annual results may differ substantially.

b.) One of the most popular artists at Spectacular Comics is leaving the company and going to work for a competitor.

c.) Shortly after the balance sheet date, but before the financial statements are issued, one of Coast Foods’s two processing plants was damaged by a tornado. The plant will be out of service for at least three months.

d.) The management of Soft Systems believes that the company has developed systems software that will make Windows® virtually obsolete. If they are correct, the company’s profits could increase by 10-fold or more.

e.) College Property Management (CPM) withheld a $500 security deposit from students who, in violation of their lease, kept a dog in their apartment. The students have sued CPM for this amount in small claims court.

Instructions:

For each case, explain what, if any, disclosure is required under generally accepted accounting principles. Explain your reasoning.

Expert Solution

a.) Mandella Construction Co. uses the percentage-of-completion method to recognize revenue on long-term construction contracts. This is one of two acceptable methods of accounting for such projects. Over the life of the project, both methods produce the same overall results, but the annual results may differ substantially.

disclose the accounting method in the notes to account

Users of the financial statements need to be disclosed this information for proper intrepretation of financial statements

b.) One of the most popular artists at Spectacular Comics is leaving the company and going to work for a competitor.

not required

There is a change in the personnel, which doesn’t affect the financial position of the company and doesn’t require any disclosure under GAAP

c.) Shortly after the balance sheet date, but before the financial statements are issued, one of Coast Foods’s two processing plants was damaged by a tornado. The plant will be out of service for at least three months.

disclose the damage that occurred to the plant and the estimated period of closure(in notes to account).

Damage to the plant hampers the companys revenue generation. This is of importance to the users of the fiancial statements

d.) The management of Soft Systems believes that the company has developed systems software that will make Windows® virtually obsolete. If they are correct, the company’s profits could increase by 10-fold or more.

not required

this doesn’t affect the financial position of the company and such speculation is not required to be disclosed under GAAP

e.) College Property Management (CPM) withheld a $500 security deposit from students who, in violation of their lease, kept a dog in their apartment. The students have sued CPM for this amount in small claims court.

not required/omitted on the discretion

This is immaterial and seemingly a usual process and routine. Thus not required to be reported o the basis of immateriality.

HOPE THIS WAS HELPFUL.

A LOT OF EFFORT HAS BEEN PUT INTO THIS TO MAKE IT EASILY UNDERSTANDABLE.

INCASE OF DOUBTS, GET BACK TO ME.

DO CONSIDER GIVING THIS A THUMBS UP.

ekkarill92 answered 1 year ago

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