(Full Disclosure Principle) Presented below are a number of facts related to Weller, Inc. Assume that no mentionof these facts was made in the financial statements and the related notes.

Instructions

Assume that you are the auditor of Weller, Inc. and that you have been asked to explain the appropriate accounting and related disclosure necessary for each of these items.

(a) The company decided that, for the sake of conciseness, only net income should be reported on the income statement. Details as to revenues, cost of goods sold, and expenses were omitted.

(b) Equipment purchases of \(170,000 were partly financed during the year through the issuance of a \)110,000 notes payable. The company offset the equipment against the notes payable and reported plant assets at \(60,000.

(c) Weller has reported its ending inventory at \)2,100,000 in the financial statements. No other information related to inventories is presented in the financial statements and related notes.

(d) The company changed its method of valuing inventories from weighted-average to FIFO. No mention of this change was made in the financial statements.

The financial statement is defined as the statement prepared to find out the financial position and performance of the business.

The company is doing wrong. The company must disclose all the transactions related to the business without hiding anything from the financial statements. The company must disclose revenues and expenses which generate the net income only then the users of the financial statements can know whether the company is earning profit or loss.

The company must show the proper accounting treatment in the financial statements. The company must show the asset as $170,000 and a liability of $110,000. The company must record all the transactions of the business without hiding anything from the financial statements.

The company must disclose the information related to inventory in the footnotes of the balance sheet and also the method that is used to value the inventory. If the valuation method of inventory is not mentioned in the footnotes, the balance of the inventory might vary based on the method.

The company must disclose the change of valuation method from the weighted average method to the FIFO method in the footnotes of the financial statements.The company should also explain the change in the balance of the inventory because of the change in the inventory method.