Reference no: EM13839038

1. (SCF-Indirect Method):

The following are Sullivan Corp.'s comparative balance sheet accounts at December 31, 2014 and 2013, with a column showing the increase (decrease) from 2013 to 2014.

Comparative Balance Sheets

			Increase
	2014	2013
			(Decrease)
Cash	$815,000	$700,000	$115,000
Accounts Receivable	$1,128,000	$1,168,000	$(40,000)
Inventory	$1,850,000	$1,715,000	$135,000
Property, plant, and equipment	$3,307,000	$2,967,000	$340,000
Accumulated depreciation	$(1,165,000)	$(1,040,000)	$(125,000)
Investment in Myers Co.	$310,000	$275,000	$35,000
Loan receivable	$250,000	$-	$250,000
Total Assets	$6,495,000	F$5,785,000	$710,000
			$
Accounts Payable	$1,015,000	$955,000	$60,000
Income tax payable	$30,000	$50,000	$(20,000)
Dividends payable	$80,000	$100,000	$(20,000)
Lease liability	$400,000	$	$400,000
Common stock, $1 par	$500,000	$500,000	$
Paid in capital in excess of par - common stock	$1,500,000	$1,500,000	$
Retained earnings	$2,970,000	$2,680,000	$290,000
Total liabilities	$6,495,000	$5,785,000	$710,000

Additional information:

1. On December 31, 2013, Sullivan acquired 25% of Myers Co.'s common stock for $275,000. On that date, the carrying value of Myers's assets and liabilities, which approximated their fair values, was $1,100,000. Myers reported income of $140,000 for the year ended December 31, 2014. No dividend was paid on Myers's common stock during the year.

2. During 2014, Sullivan loaned $300,000 to TLC, Co., an unrelated company. TLC made the first semi-annual principal repayment of $50,000, plus interest at 10%, on December 31, 2014.

3. On January 2, 2014, Sullivan sold equipment costing $60,000, with a carrying amount of $38,000, for $40,000 cash.

4. On December 31, 2014, Sullivan entered into a capital lease for an office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Sullivan made the first rental payment of $600,000 when due on January 2, 2015.

5. Net income for 2014 was $370,000.

6. Sullivan declared and paid the following cash dividends for 2014 and 2013.

	2014	2013
Declared	December 15, 2014	December 15, 2013
Paid	February 28, 2015	February 28, 2014
Amount	$80,000	$100,000

Instructions

Prepare a statement of cash flows for Sullivan Corp. for the year ended December 31, 2014, using the indirect method.

2. (Post-Balance-Sheet Events)

At December 31, 2014, 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 of 2014 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, 2015, and you find the following:

1. On February 3, 2015, one of Coburn's customers declared bankruptcy. At December 31, 2014, this company owed Coburn $300,000, of which $60,000 was paid in January 2015.

2. On January 8, 2015, one of the three major plants of the client burned.

3. On January 23, 2015, 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.

4. A major electronics enterprise has introduced a line of products that would compete directly ith Coburn's primary line, now being produced in a specialty designed plant. Because of manufacturing innovations, the competitor has been able to achieve quality similar to that of Coburn's products but at a 50% lower. Coburn officials say they will meet the lower prices, which are high enough to cover variable manufacturing and selling costs but which permit recovery of only a portion of fixed costs.

5. Merchandise traded in the open market is recorded in the company's records at $1.40 per unit on December 31, 2014. This price had prevailed for 2 weeks, after release of an official market report that predicted vastly enlarged supplies; however, no purchases were made at $1.40. The price throughout the preceding year had been about $2, which was the level experienced over several years. On January 18, 2015, the price returned to $2, after public disclosure of an error in the official calculations of the prior December, correction of which destroyed the expectations of excessive supplies. Inventory at December 31, 2015, was on a lower-cost-or-market basis.

6. On February 1, 2015, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of $1,200,000 of preferred stock.

Instructions

State in each case how 2014 financial statements would be affected, if at all.

3)

Professional research: FASB Codification

As part of the year-end audit, you are discussing the disclosure checklist with your client. The checklist identifies the items that must be disclosed in a set of GAAP financial statements. The client is surprised by the disclosure item related to accounting policies. Specially, since the audit report will attest to the statements being prepared in accordance with GAAP, the client questions the accounting policy checklist item. The client has asked you to conduct some research to verify the accounting policy disclosures.

Instructions

If you school has a subscription to the FASB Codification, go to https://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.

a) In general, what should disclosures of accounting policies encompass?

b) List some examples of the most commonly required disclosures.