Question

Exercise 5-5 Making financial disclosures (LO 5-3)

The preliminary draft of the balance sheet at the end of the current fiscal year for Eagle Industries follows. The statement will be incorporated into the annual report to stockholders and will present the dollar amounts at the end of both the current and prior years on a comparative basis. The accounts in the statement are properly classified, and the dollar amounts have been determined in accordance with generally accepted accounting principles. The company does not intend to provide any more detailed information in the body of the statement.

Balance Sheet as of December 31, 20X1
($ in millions)
Assets
Current assets
Cash	$	13.4
Short-term investments		6.8
Accounts receivable (net)		113.0
Inventories		228.0
Prepayments and other		4.8
Total current assets		366.0
Investments in equity securities (available for sale)		55.2
Property, plant, and equipment (net)		787.1
Total assets	$	1,208.3
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities on long-term debt	$	36.3
Notes payable		79.5
Accounts payable		139.8
Accrued taxes		42.3
Accrued interest		11.0
Other		4.4
Total current liabilities		313.3
Long-term liabilities		477.2
Total liabilities		790.5
Stockholders’ equity
Preferred stock		30.0
Common stock		77.0
Additional paid-in capital on common stock		65.4
Retained earnings—appropriated		40.8
Retained earnings—unappropriated		204.6
Total stockholders’ equity		417.8
Total liabilities and stockholders’ equity	$	1,208.3

Required:

Identify the accounts that most likely would require further disclosure in the notes to the financial statements and describe what information would have to be disclosed in those notes by Eagle Industries before the statement can be included as part of the annual report for presentation to its stockholders.

Answer 1

Following disclosure to notes to Accounts to be provided by the Eagle Industries before preparation of financial Accounts-

1. Prepayments and other- The prepaid Expenses which are paid by the Eagle industries are to be disclosed as the expenses would include in Profit & Loss A/C and further included in the Balance Sheet Assets side.
2. Current maturities on long term debt- Which current securities are matured that are included in the long term debts.
3. Other- In other head, which are other current liabilites that are included in this head.
4. Retained Earnings- Both appropriated and inappropriated categorisation are to be explained in the liablities side which are increasing the capital of the firm.