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CA24-4 (Post-Balance-Sheet Events) At December 31, 2014, Cob

    CA24-4 (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 commonstock), and retained earnings of $2,000,000. Net sales for the year 2014 were $18,000,000, and net incomewas $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, thiscompany owed Coburn $300,000, of which $60,000 was paid in January 2015.2. On January 18, 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 itsproduction. 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 withCoburn’s primary line, now being produced in a specially designed new plant. Because of manufacturinginnovations, the competitor has been able to achieve quality similar to that of Coburn’s productsbut at a price 50% lower. Coburn officials say they will meet the lower prices, which are highenough to cover variable manufacturing and selling costs but which permit recovery of only a portionof fixed costs.5. Merchandise traded in the open market is recorded in the company’s records at $1.40 per unit onDecember 31, 2014. This price had prevailed for 2 weeks, after release of an official market reportthat predicted vastly enlarged supplies; however, no purchases were made at $1.40. The pricethroughout the preceding year had been about $2, which was the level experienced over severalyears. On January 18, 2015, the price returned to $2, after public disclosure of an error in the officialcalculations of the prior December, correction of which destroyed the expectations of excessivesupplies. Inventory at December 31, 2015, was on a lower-of-cost-or-market basis.6. On February 1, 2015, the board of directors adopted a resolution accepting the offer of an investmentbanker to guarantee the marketing of $1,200,000 of preferred stock.

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