E2-8 (LO6) (Full Disclosure Principle) of these facts was made in the financial
ID: 2332514 • Letter: E
Question
E2-8 (LO6) (Full Disclosure Principle) of these facts was made in the financial statements and the r Presented below are a number of facts related to Weller, nc. Assume that no mention been asked to explain the appropriate accounting and related Assume that you are the auditor of Weller, Inc. and that you disclosure necessary for each of these items have a) The company decided that, for the sake of ib) Equipment purchases of $170,000 were partly financed during the year th (co) Weller has reported its ending inventory related to di The company changed its method of valuing inventories from weighted-average to FIFO. No mention of this only net income should be reported on the income statemenst. Details as to revenues, cost of goods sold, and able. The company offset the equipment notes payab inventories is presented in the financial statements and related notes was made in the financial statements. expenses were omitted t against the notes payable and reported plant assets at $60,000. at $2.100,000 in the financial statements. No other informationExplanation / Answer
1. Details of revenue, cost of goods sold and expenses are to be shown in details for the users of financial statements so that the stakeholders analyze relevant sections in these details according to their needs. Moreover in the disclosures, the company shall give full details regarding product wise sales, geography wise sales etc.
2. Equipment to be shown at $170,000 aand notes payable should be shown at $110,000 separately. These should not be setoff.The company should rectify by passing rectification entry. And even if the company has taken $60,000 for calculation of depreciation, it should also be rectified and be calculated on $170,000. The method of depreciation is also to be disclosed.
In the notes for equipment, the company should disclose that equipment has been partly financed through notes payable.
3. The should disclose the components of inventory such as raw material, work in progress and finished goods separately and should not be shown as a single item.
4. The company should disclose this fact in the notes that it has changed the method of valuation from weighted average to FIFO and the reasons to change. Moreover, the company should disclose the effect of change in net profit due to change in method.
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