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Chapter 2: Q27Q (page 61)

In January 2018, Jane way Inc. doubled the amount of its outstanding stock by selling on the market an additional 10,000 shares to finance an expansion of the business. You propose that this information be shown by a footnote on the balance sheet as of December 31, 2017. The president objects, claiming that this sale took place after December 31, 2017, and therefore should not be shown. Explain your position.

Short Answer

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According to the accountant of the firm Jane, way Incorporation has not been able to list the transaction on the balance sheet. However, the company prepared the footnotes, but during the time of the accounting year, closing footnotes can be reenlisted and prepared as a note that it is out as per the date and amount.

Step by step solution

01

Meaning of Balance Sheet

The balance sheet is the statement of a firm's assets, liabilities, and capital prepared at a certain point, mainly at the end of the accounting period.

02

Explanation of the statement

The general principle followed regarding the full disclosure principle is to reveal in the accounting statements any case of sufficient importance to influence the judgment of a knowledgeable reader.

The fact that the value of outstanding common stock became twice in January of the following reporting period should be revealed by the company because such a case is valuable for the existing stockholders. Despite the event's existence after December 31, 2017, it should be presented on the balance sheet as of December 31, 2017, to make proper disclosure.

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Most popular questions from this chapter

Selane Eatery operates a catering service specializing in business luncheons for large corporations. Selane requires customers to place their orders 2 weeks in advance of the scheduled events. Selane bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, when should Selane recognize revenue related to its catering service

Financial Reporting CaseIFRS2-5 As discussed in Chapter 1, the International Accounting Standards Board(IASB) develops accounting standards for many international companies. The IASB also has developed a conceptual framework to help guide the setting of accounting standards. While the FASB and IASB have issued converged concepts statements on the objective and qualitative characteristics, other parts of their frameworks differ.

Instructions

Briefly discuss the similarities and differences between FASB and IASB conceptual frameworks as related to elements and their definitions.

What is the distinction between comparability and consistency?

Briefly describe how the organization of the FASB Codification corresponds to the elements of financial statements.

Homer Winslow and Jane Alexander are discussing various aspects of the FASB’s concepts statement on the objective of financial reporting. Homer indicates that this pronouncement provides little, if any, guidance to the practicing professional in resolving accounting controversies. He believes that the statement provides such broad guidelines that it would be impossible to apply the objective to present-day reporting problems. Jane concedes this point but indicates that the objective is still needed to provide a starting point for the FASB in helping to improve financial reporting.Instructions

  1. Indicate the basic objective established in the conceptual framework.
  2. What do you think is the meaning of Jane’s statement that the FASB needs a starting point to resolve accounting controversies?
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