Chapter 5, Problem 8C

Ethics and Sale of Operating Component

It is the end of 2019, and, as an accountant for Newell Company, you are preparing its 2019 financial statements. On December 29, 2019,

Newell’s management decided to sell one of its major divisions, subject to some legal work that is expected to be completed during the first week in April 2020 after the 2019 financial statements have been issued). During 2019, the division earned a small operating income that is just enough for the company to report “record earnings” for the year. However, the estimated fair value of the division at the end of 2019 is less than its net book value, so that management anticipates the component will be sold at a loss.

Newell’s president stops by your office and says, “You have been doing a fine job. Keep up the good work because you are heading for a promotion in early 2021. Once we report the record earnings for 2019, our shareholders and creditors will be happy. Then I think our earnings for 2020 will be high enough so that the loss we expect to report in 2020 on the sale of the division will not look so bad.” After the president leaves your office, you continue preparing the 2019 financial statements.

Required:

From financial reporting and ethical perspectives, what information, if any, will you include about the upcoming sale of the division in the 2019 financial statements?