Financial statements with incomplete data and estimates
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On January 20, 2005, Jennifer Nelson, the accountant for Travon Enterprises, is feeling pressure to complete the annual financial statements. The company president has said he needs up-to-date financial statements to share with the bank on January 21 at a dinner meeting that has been called to discuss Travon's obtaining loan financing for a special project.
Jennifer knows that she will not be able to gather all the needed information in the next 24 hours to prepare the entire set of adjusting entries that must be posted before the financial statements accurately portray the company's performance and financial position for the fiscal period ended December 31, 2004.
Jennifer ultimately decides to estimate several expense accruals at the last minute. When deciding on estimates for the expenses, she uses low estimates because she does not want to make the financial statements look worse than they are. Jennifer finishes the financial statements before the deadline and gives them to the president without mentioning that several accounts use estimated balances.
a. Identify several courses of action that Jennifer could have taken instead of the one she took.
b. If you were in Jennifer's situation, what you have done? Briefly justify your response.
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Solution Summary
Jennifer Nelson, the accountant for Travon Enterprises, needs a better list of options to deal with the incomplete data in the preparation of company financial statements. The solutions suggest four courses of action and evaluates each in light of the current situation.
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Alternative courses of action for Jennifer could have included:
(a) Meeting with the company president to explain that providing financial statements with possible errors could have future repercussions in terms of comparability to the corrected statement or to the prior year or subsequent year activity. If these financial statements are out of whack, the ...
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