There are NO FINANCIAL STATEMENTS TO prepare here.
1. Write a disclosure for each scenario. Keep it simple, but give enough details to tell the reader, what the financials are saying. Keep it to 3-4 pages Go in order and work your way through it.
Ken Corp
1) Assets -
a. Ken Corporation uses LIFO method to establish its Cost of Goods Sold, which means the purchase price of the latest inventory purchased was used to calculate the cost of the goods sold in the period. In 2012 it was determined $300,000 of existing inventory was considered obsolete, and the Statements reflect the action. This amount is considered material.
2) Property, Plant and Equipment (PP&E): Major categories of PP&E for Ken Corporation
are land, office buildings, furniture and fixtures, equipment, and leasehold improvements. Ken Corp uses SL for Office Buildings, and SYD for all others.
3) Change in Salvage Value Estimate - At the beginning of 2012, Ken Corp changed its salvage value of equipment from 3 to 5 years. This change is based on the estimated change in useful life for that equipment.
4) Litigation - On November 10, 2012, a Ken Corp. truck was in an accident and a notice of a lawsuit was filed against the company seeking $ 800,000 in damages for personal injuries. Ken Corp believes that it is reasonably possible the plaintiff could be awarded $750,000, but the range is considered to be between $ 500,000 and $1,000,000.
5) Stock Sales - Per contract between Ken Corporation and the CEO, Ken Corp is obligated to sell 10,000 shares of stock to the CEO at market price. On January 2, 2013, 10,000 shares of $1 par stock were sold to the CEO at the market price of $10 per share.
6) Acquisition - Long Term Assets - On June 1, 2012, Ken Corp acquired 100% of Chris Corp. Total acquisition cost was $1,600,000, which was paid using $1,000,000 cash and the issuance of 40,000 shares of Ken Corp common stock with a market value of $15/share to the shareholders of Chris Corp.
7) Leases: Ken acquired an asset, as part of a capital lease on March 1, 2012. The assets present value was $ 150,000, and the interest rate on the lease was 5%. The due date is March 1, of every year. The current amortization charge for the next 3 years is: 3,000, 4,000 and $ 5,000. The lease is subject to renewal in 2015, and has a bargain purchase option at the end of the lease (February 28, 2015) in the amount of $ 20,000.
8) The Earnings per share (EPS). EPS from continuing operations is $3.00, Discontinued (Loss) $1,20T The following is a summary of how EPS was calculated:
a. EPS from continuous operations - $ 3.00
b. Less Loss from discontinued operation - ($ 1.20)
9) Long Term Debt - Ken Corp, issued 1,000 bonds with a face value of $1,000 on June 1, 2012 totaling $1,000,000 in debt obligations. These bonds are term bonds, due on May 31, 2020. The interest rate on the bonds was 10% coupon rate, and the market rate at the time of issue was of 12%. They can be called early on May 31. 2016 at a price of 1.01. There is also a sinking fund set up to pay off the bonds at maturity. The maturity for the next 2 years for the sinking fund is: 2013: $ 40,000 2014: $ 50,000
10) Dividends: Ken Corporation last paid dividends on December 31, 2010. Ken Corp. has 2 Stock classes
a. Preferred stock - There 100,000 authorized and 20,000 outstanding $100 par value preferred 6% cumulative stock. It has limited voting rights.
b. Common stock Par value $ 1.00, authorized 1,300,000, issued 750,000, outstanding 700,000. 50,000 shares of common stock are treasury stock, held by the company. Ken Corp uses the cost method in acquiring stock.
11) Executive Compensation - Ken Corp has a compensatory Stock Option plan for all senior executives. The options are valued at the fair value of the options issued. The number of options that are issued are 50,000, at the option price of $ 2.00. This means that the executive has the option to purchase a share of stock at $2 per share. The exercise date of the options is January 1, 2015. The grant date was January 1, 2012. The vesting period is from January 1, 2012 through December 31, 2014. The executives have 2 more years before they are vested and able to exercise their options.
12) Investments - We have different investments that we purchase and buy of other companies. We account for these investments as part of FASB 115, mark to market securities..Held to Maturity 100 bonds, $1,000 a piece. Interest 6%, pay interest semi annually on June 30, and December 31. Intent is to hold until maturity.
13) Available for sale: 10,000 shares of stock, par .01 owned of Halstad Co. Cost of investment was $ 5.00 per share. Dividends paid 4 times a year at a rate of .04 per share.. We sold 1,000 shares on September 30th. Fair value at year end was $10.00 per share
14) Trading - Ken Corp purchased 5,000 shares of Intel stock of Intel for $ 10.00 per share for a total of $50,000, on June 1, 2012. Ken Corp intends to sell the entire proceeds within the next twelve months. As of December 12, 2012, the market rate of Intel was $8.00 per share. It pays dividends once a year on December 31.
15) Debt Reclassification -At the end of 2012 Ken Corp had recognized debt coming due in the amount of $ 5,000,000 as debt payable in the short liabilities. Agreement with bank was done before the financial statements were issued on April 31. Of that amount, $4,750,000 was to be reclassed The interest rate is a variable interest rate, but can run no higher than 5% over the course of the agreement. The new long term debt will go until 2020.
Here is an example of what you need for a disclosure from one of the items on the project list. You do not need full blown financials. In some of the items, you can make your own numbers. In others, they are provided for you, and you can make a determination if, for example, on the acquisition, was it a goodwill or bargain purchase (and explain it).
Ken
Inventory. The company inventory uses last-in, first-out method to value inventory. In 2012, $300,00 (considered material) of existing inventory was considered obsolete, and the statements reflect this note. Total inventory valued at $1,200,000. The $ 300,000 would be presented.