Reference no: EM132612762
In connection with your examination of the financial statements of Martinson Inc. for the year ended December 31, your post-balance sheet date audit procedures disclosed the following items:
1. January 5: The funds for a $50,000 loan to the corporation made by Marc Martinson on May 18 were obtained by him with a loan on his personal life insurance policy. The loan was recorded in the account "Loan payable to officers." The source of the funds obtained by Marc was not disclosed in the company records.
2. January 9: The mineral content of a shipment of ore en route on December 31 was determined to be 80 percent. The shipment was recorded at year end at an estimated content of 50 percent by a debit to "Raw material inventory" and a credit to "Accounts payable" in the amount of $41,200. The final liability to the vendor is based on the actual mineral content of the shipment.
3. January 31: As a result of reduced sales, production was curtailed in mid-January and some workers were laid off. On February 5, all the remaining workers went on strike. To date, the strike is unsettled.
4. February 20: A contract was signed whereby Whitworth Enterprises purchased from Martinson Inc. all of its capital assets, inventories, and the right to conduct business under the name "Martinson Inc. Division." The transfer's effective date will be March 1. The sale price was $800,000.
Problem 1: Which of the following accurately describes the disclosure for the above items?
a) Item 1 does not require any further disclosure
b) Disclosure for item 1 should also include the source of the funds
c) Item 3 requires disclosure and the issuance of the audit report should be delayed until the strike is settled
d) Item 2 requires an adjustment to Raw Materials and Accounts Payable of $24,720
e) Disclosure is not required for item 4 as the date, February 20th, is too far after the date of the balance sheet
f) With respect to items 3 and 4, the facts available at the date of the audit report should be disclosed