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A 10-year loan agreement which the company entered into 3 y

Topic: Disclosures required in various situations.

A 10-year loan agreement which the company entered into 3 years ago, provides that dividend payments may not exceed net income earned after taxes subsequent to the date of the agreement. The balance of retained earnings at the date of the loan agreement was $420,000. From that date through December 31, 2011, net income after taxes has totaled $570,000 and cash dividends have totaled $320,000. On the basis of these data, the staff auditor assigned to this review concluded that there was no retained earnings restriction at December 31, 2011.

We are to discuss any additional disclosures in the financial statements and notes that the auditor should recommend to the client.

Can you provide some direction on how to do this or give an example?

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A 10-year loan agreement which the company entered into 3 years ago, provides that dividend payments may not exceed net income earned after taxes subsequent to the date of the agreement. The balance of retained earnings at the date of the loan agreement was $420,000. From that date through December 31, 2011, net income after taxes has totaled $570,000 and cash dividends have totaled $320,000. On the basis of these data, the staff auditor assigned to this review concluded that there was no retained earnings restriction at December 31, 2011.

We are to discuss any additional disclosures in the financial statements and notes that the auditor should recommend to the client.

Can you provide some direction on how to do this or give an example?

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Solution Summary

Topic: Disclosures required in various situations.

A 10-year loan agreement which the company entered into 3 years ago, provides that dividend payments may not exceed net income earned after taxes subsequent to the date of the agreement. The balance of retained earnings at the date of the loan agreement was $420,000. From that date through December 31, 2011, net income after taxes has totaled $570,000 and cash dividends have totaled $320,000. On the basis of these data, the staff auditor assigned to this review concluded that there was no retained earnings restriction at December 31, 2011.

We are to discuss any additional disclosures in the financial statements and notes that the auditor should recommend to the client.

Can you provide some direction on how to do this or give an example?

$2.19