Chapter 24: 4CA_3 (page 1454)

At December 31, 2017, 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 2017 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, 2018, and you find the following.
3) On January 23, 2018, 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.
Instructions
State in each case how the 2017 financial statements would be affected, if at all.

Short Answer

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Step by step solution

Meaning of Work Strike

When a group of workers refuses to work for an organization it is called a work strike. The reason behind the work strike could be low pay rate, working conditions, or maybe internal disputes.

Explaining the effect in the financial statements

Since the strikes are considered general knowledge, no disclosure is necessary. On the other hand, many auditors will advocate full disclosure under all circumstances.

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(\(000 omitted)
	2018	2017	2016	2015	2014
Sales revenue	\)20,000	\(16,000	\)14,000	\(6,000	\)4,000
Net income	2,400	14,000	800	700	250
Average total assets	22,000	19,000	11,500	4,200	3,000
Current assets	8,000	6,000	3,000	1,200	1,000
Working capital	3,600	3,200	1,200	500	400
Common shares: Number of shares Outstanding (000) Average market price	2,000 \(9	2,000 \)6	2,000 $4	20 -	20 -

Short Answer

Step by step solution

Meaning of Work Strike

Explaining the effect in the financial statements

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