At December 31, 2014, Coburn Corp. has assets of $10,000,000, liabilities of $6,000,000, common stock of $2,000,000 (representing $2,000,000 shares of $1 par common stock), and retained earnings of $2,000,000. Net sales for the year of 2014 were $18,000,000, and net income was $800,000. As auditors of this company, you are making a review of subsequent events on February 13, 2015, and you find the following:
On February 3, 2015, one of Coburn’s customers declared bankruptcy. At December 31, 2014, this company owed Coburn $300,000, of which $60,000 was paid in January 2015.
On January 8, 2015, one of the three major plants of the client burned.
On January 23, 2015, a strike was called at one of Coburn’s largest plants, which halted 30% of its production. As of today (February 13), the strike has not been settled.
A major electronics enterprise has introduced a line of products that would compete directly ith Coburn’s primary line, now being produced in a specialty designed plant. Because of manufacturing innovations, the competitor has been able to achieve quality similar to that of Coburn’s products but at a 50% lower. Coburn officials say they will meet the lower prices, which are high enough to cover variable manufacturing and selling costs but which permit recovery of only a portion of fixed costs.
Merchandise traded in the open market is recorded in the company’s records at $1.40 per unit on December 31, 2014. This price had prevailed for 2 weeks, after release of an official market report that predicted vastly enlarged supplies; however, no purchases were made at $1.40. The price throughout the preceding year had been about $2, which was the level experienced over several years. On January 18, 2015, the price returned to $2, after public disclosure of an error in the official calculations of the prior December, correction of which destroyed the expectations of excessive supplies. Inventory at December 31, 2015, was on a lower-cost-or-market basis.
On February 1, 2015, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of $1,200,000 of preferred stock.
Instructions
State in each case how 2014 financial statements would be affected, if at all
As per IAS 10 (International Accounting Standered-10)
Events After The Reporting Period contains requirements for when events after the end of the reporting period should be adjusted in the financial statements.
Adjusting events are those providing evidence of conditions existing at the end of the reporting period, whereas non-adjusting events are indicative of conditions arising after the reporting period (the latter being disclosed where material).
(1) Coburn’s customers declared bankruptcy it will affect the balance sheet. At December 31, 2014, this company owed Coburn $300,000, of which $60,000 was paid in January 2015.
This situation is occureed after Balancesheet date but it will not affect to balancesheet because at 31 december 2014 client was not bankrupt so we should mention in the notes to the Balancesheer of the company about client bankruptcy and bad debt expenses of 240,000
(2) On January 23, 2015, a strike was called at one of Coburn’s largest plants, which halted 30% of its production. As of today (February 13), the strike has not been settled.
This thing should be mention in the Note to the Balance sheet that On january 23 there was a strikw in the Company
(3) On January 8, 2015, one of the three major plants of the client burned.it will not fit in any catagery i.e adjusting or non Adjusitng Event
(4) At 31 december price is prevailing at $1.40. and this price prevail for 2 weeks so this situation prevail as on 31 december 2014 and this is adjusting event so we should adjust the stock at the price of $ 1.4
