Question

In 2014, you invested $12,000 along with 5 other investors in a new theatre, Rock-On that

offers Broadway play productions. Because you live out of state, you have not been actively

involved in the daily affairs of the theatre. On January 10, 2015, you are excited because you

received $12,000 as a dividend after the end of the 1st year of the theatre’s existence.

Included with your $12,000 check are financial statements and some supplemental information

Regarding the accounting? The supplemental information explains:

             (1) During the last three months of 2014, an aggressive advertising campaign resulted in the sale of 600 season tickets for the 2015 productions. Each season ticket cost $120 and the resulting $72,000 was included in 2014 income.                

           

(2) Along with the advertising campaign, the general manager was able to secure pledges of $7,500 for advertising by local merchants in the playbills for the first two productions for 2015. This amount is included as advertising revenue in the 2014 financial statements.

REQUIRED:

Are there any problems related to the supplementary disclosures? If so, explain and indicate what effects (over- or understatements) these items will have on the financial statements.

Answer 1

The requirement is to determine the problems related to the supplementary disclosures and need to explain and indicate the effects of over- or understatements of these items on the financial statements: