Ch 24 HWq - Chapter 24 Homework Questions Q1 What are the...

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Chapter 24 Homework Questions Q1 What are the major advantages of notes to the financials? What types of items are usually reported? The major advantages are: (1) additional information pertinent to specific financial statements can be explained in qualitative terms, or supplementary data of a quantitative nature can be provided to expand on the information in the financial statements, and (2) restrictions on basic contractual agreements can be explained. The types of items normally found in footnotes are: (1) disclosure of accounting methods used, (2) disclosure of contingent assets and liabilities, (3) examination of creditor claims, (4) claims of equity holders, and (5) executory commitments. Q2. What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years? The full disclosure principle in accounting calls for reporting in financial statements any financial facts significant enough to influence the judgment of an informed reader. Disclosure has increased because of the complexity of the business environment, the necessity for timely information, and the desire for more information on the enterprise for control and monitoring purposes. Q6 What are the major types of subsequent events? Indicate how each of the following would be reported. “Subsequent events” are of two types: (1) Those which affect the financial statements directly and should be recognized therein through appropriate adjustments. (2) Those which do not affect the financial statements directly and require no adjustment of the account balances but whose effects may be significant enough to be disclosed with appropriate figures or estimates shown.
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(a) Collection of note previously written off. Adjust the financial statements, if material (b) Large issuance of preferred stock Disclosure. (c) Acquisition of company Disclosure. (d) Plant destruction in flood. Disclosure. (e) Death of CEO. Neither adjustment nor disclosure necessary. (f) Wage increase from strike. Neither adjustment nor disclosure necessary. (g) Settle tax case, higher than anticipated Adjust the financial statements directly. (h) Change product mix Neither adjustment nor disclosure necessary. Q7. What are diversified companies? What accounting problems are related to diversified companies? Diversified companies are enterprises whose activities are segmented into unrelated industries. The accounting problems related to diversified companies are: (1) the problem of defining a segment for financial reporting purposes, (2) the difficulty of allocating common or joint costs to various segments, and (3) the problem of evaluating segment results when a great deal of transfer pricing is involved. Q8
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Ch 24 HWq - Chapter 24 Homework Questions Q1 What are the...

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