Chapter 24
1. What are the major advantages of notes to the financial statements? What types of items
are usually reported in notes?
2. What is the full disclosure principle in accounting? Why has disclosure increased
substantially in the last 10 years?
3. The following information was described in a note of Canon Packing Co. “During August,
Holland Products Corporation purchased 311,003 ordinary shares of the Company, which
constitutes approximately 35% of the shares outstanding. Holland has since obtained
representation on the Board of Directors.” “An affiliate of Holland Products Corporation
acts as a food broker for Canon Packing in the greater Amsterdam marketing area. The
commissions for such services after August amounted to approximately €20,000.” Why is
this information disclosed?
4. What are the major types of subsequent events? Indicate how each of the following
“subsequent events” would be reported.
(a) Collection of a note written off in a prior period.
(b) Issuance of a large preference share offering.
(c) Acquisition of a company in a different industry.
(d) Destruction of a major plant in a flood.
(e) Death of the company’s chief executive officer (CEO).
(f) Additional wage costs associated with settlement of a 4-week strike.
(g) Settlement of an income tax case at considerably more tax than anticipated at year-end.
(h) Change in the product mix from consumer goods to industrial goods.
5. What are diversified companies? What accounting problems are related to diversified
companies?
6. What quantitative materiality test is applied to determine whether a segment is significant
enough to warrant separate disclosure?
7. What is an operating segment, and when can information about two operating segments be
aggregated?
8. What are interim reports? Why is a complete set of financial statements often not provided
with interim data?
9. What are the accounting problems related to the presentation of interim data?
10. What approaches have been suggested to overcome the seasonality problem related to
interim reporting?
11. “The financial statements of a company are management’s, not the accountant’s.” Discuss
the implications of this statement.
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