Question:
Hallergan Company produces car and truck batteries that it sells primarily to auto manufacturers. Dorothy
Hawkins, the company’s controller, is preparing the financial statements for the year ended December 31,
2013. Hawkins asks for your advice concerning the following information that has not yet been included
in the statements. The statements will be issued on February 28, 2014.
1. Hallergan leases its facilities from the brother of the chief executive officer.
2. On January 8, 2014, Hallergan entered into an agreement to sell a tract of land that it had been holding
as an investment. The sale, which resulted in a material gain, was completed on February 2, 2014.
3. Hallergan uses the straight-line method to determine depreciation on all of the company’s depreciable
assets.
4. On February 8, 2014, Hallergan completed negotiations with its bank for a $10,000,000 line of credit.
5. Hallergan uses the first-in, first-out (FIFO) method to value inventory.
Required:
For each of the above items, discuss any additional disclosures that Hawkins should include in
Hallergan’s financial statements.
Answer:
1. When related-party transactions occur, companies must disclose the nature of the relationship,
provide a description of the transaction, and report the dollar amounts of the transactions and any
amounts due from or to related parties.
2. When an event that has a material effect on the company’s financial position occurs after the fiscal
year-end, but before the financial statements actually are issued, the event is disclosed in a
subsequent event disclosure note.
3. The choice of the straight-line method to determine depreciation typically is disclosed in the
company’s summary of significant accounting policies disclosure note.
Hallergan Company produces car and truck batteries that it sells primarily to auto manufacturers. Dorothy
Hawkins, the company’s controller, is preparing the financial statements for the year ended December 31,
2013. Hawkins asks for your advice concerning the following information that has not yet been included
in the statements. The statements will be issued on February 28, 2014.
1. Hallergan leases its facilities from the brother of the chief executive officer.
2. On January 8, 2014, Hallergan entered into an agreement to sell a tract of land that it had been holding
as an investment. The sale, which resulted in a material gain, was completed on February 2, 2014.
3. Hallergan uses the straight-line method to determine depreciation on all of the company’s depreciable
assets.
4. On February 8, 2014, Hallergan completed negotiations with its bank for a $10,000,000 line of credit.
5. Hallergan uses the first-in, first-out (FIFO) method to value inventory.
Required:
For each of the above items, discuss any additional disclosures that Hawkins should include in
Hallergan’s financial statements.
Answer:
1. When related-party transactions occur, companies must disclose the nature of the relationship,
provide a description of the transaction, and report the dollar amounts of the transactions and any
amounts due from or to related parties.
2. When an event that has a material effect on the company’s financial position occurs after the fiscal
year-end, but before the financial statements actually are issued, the event is disclosed in a
subsequent event disclosure note.
3. The choice of the straight-line method to determine depreciation typically is disclosed in the
company’s summary of significant accounting policies disclosure note.
