ch24 - SOLUTIONS TO B EXERCISES E24-1B (1015 minutes) (a)...

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SOLUTIONS TO B EXERCISES E24-1B (10–15 minutes) (a) The purchase of common stock is an example of a subsequent event which provides evidence about conditions that did not exist at the balance sheet date but arose subsequent to that date. Therefore, no adjustment to the financial statements is recorded. However, this event should be disclosed either in a note, a supplemental schedule, or even pro-forma financial data, if material. (b) The changed estimate of the litigation accrual is an example of a sub- sequent event which provides additional evidence about conditions that existed at the balance sheet date. The litigation accrual existed at December 31, 2007, but the amount was not certain. This event affects the estimate previously made and should result in an adjustment of the financial statements. The correct amount ($500,000) would have been recorded at December 31 if it had been available. Therefore, Cola should increase litigation settlement expense in the 2007 income statement by $300,000. In the balance sheet, the litigation accrual should be increased and retained earnings decreased by $300,000. E24-2B (15–20 minutes) 1. (a) 4. (b) 7. (b) 10. (b) 2. (b) 5. (b) 8. (c) 3. (c) 6. (c) 9. (c) 24-1
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E24-3B (5–10 minutes) (a) Revenue test: 10% X $398,000 = $39,800 Segments A ($140,000), B ($40,000) and D ($190,000) meet this test. (b) Operating profit test: 10% X ($25,000 + $8,000 + $500) = $3,350 Segments A ($25,000), B ($8,000), and C ($5,000 absolute amount) all meet this test. (c) Identifiable assets test: 10% X $361,000 = $36,100 Segments A ($240,000) and D ($49,000) both meet this test. *E24-4B (20–30 minutes) Computations are given below which furnish some basis of comparison of the two companies: Era Co. McCoy Co. Composition of current assets Cash 26% 19% Receivables 13% 31% Inventories 61% 50% 100% 100% Computation of various ratios Current ratio ($833 ÷ $241) 3.46 to 1 ($781 ÷ $401) 1.95 to 1 Acid-test ratio ($220 + $108) ÷ $241 1.36 to 1
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ch24 - SOLUTIONS TO B EXERCISES E24-1B (1015 minutes) (a)...

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