On March 15, 2022, Red Company issued itsfinancial statements. Its fiscal year ends atDecember 31, 2021. On January 11, 2022, Redissued 10,000 20-year bonds for $20,000,000.Face value per bond equals $1,000. Statedinterest rate equals 5%. On March 2, 2022, dueto the unexpected economic downturn, Red'saccountant re-estimated the accounts receivableto have an ending balance of $15,250,000,which was previously recorded at $16,250,000on December 31, 2021. Please discuss how thepreceding subsequent events should bereflected in the 2021 financial statements.

Red Company Bonds issued after the balance sheet is a common occurrence that requires no disclosure…

On March 15, 2022, Red Company issue financial statements. Its fiscal year ends December 31, 2021. On January 11, 2022 issued 10,000 20-year bonds for $20,00 Face value per bond equals $1,000. Stat interest rate equals 5%. On March 2, 202

On March 15, 2022, Red Company issue financial statements. Its fiscal year ends December 31, 2021. On January 11, 2022 issued 10,000 20-year bonds for $20,00 Face value per bond equals $1,000. Stat interest rate equals 5%. On March 2, 202

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

On March 15, 2022, Red Company issued its
financial statements. Its fiscal year ends at
December 31, 2021. On January 11, 2022, Red
issued 10,000 20-year bonds for $20,000,000.
Face value per bond equals $1,000. Stated
interest rate equals 5%. On March 2, 2022, due
to the unexpected economic downturn, Red's
accountant re-estimated the accounts receivable
to have an ending balance of $15,250,000,
which was previously recorded at $16,250,000
on December 31, 2021. Please discuss how the
preceding subsequent events should be
reflected in the 2021 financial statements.

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