Question

Which of the above items would normally be disclosed in the Summary of significant accounting policies note of Limerick Enterprises?

a. Limerick has three wholly owned subsidiaries. All companies operate in the retail industry.
b. Limerick loaned $250,000, a material amount, to its Chief Executive Officer during the year. The loan is payable over 20 years with interest at 5%.
c. Limerick's current liabilities exceeded its current assets as of the balance sheet date.
d. Limerick records investments in equity securities at fair market value. All investments are in shares of publicly traded companies.
e. Limerick uses FIFO to value its inventory.
f. Limerick has issued 200,000 shares of Common stock, par value $1
g. Limerick terminated one of its Regional Sales Managers subsequent to year end. (The Manager was terminated for poor performance.)
h. Limerick uses estimates in determining the useful lives of factory equipment.

Answer 1

The Summary of significant accounting policies note in the financial statements of Limerick Enterprises would typically disclose items that are important for understanding the company's accounting methods and policies. Based on the options provided, the following items would normally be disclosed: Limerick records investments in equity securities at fair market value, Limerick uses FIFO to value its inventory, Limerick uses estimates in determining the useful lives of factory equipment.

Option d. Limerick records investments in equity securities at fair market value. All investments are in shares of publicly traded companies, is correct answer.

Step-by-step explanation:

The Summary of significant accounting policies note in the financial statements of Limerick Enterprises would typically disclose items that are important for understanding the company's accounting methods and policies. Based on the options provided, the following items would normally be disclosed:

Limerick records investments in equity securities at fair market value. This is a significant accounting policy as it indicates how the company values its investments.

Limerick uses FIFO (First-In, First-Out) to value its inventory. This is another important accounting policy as it explains the company's method of valuing inventory.

Limerick uses estimates in determining the useful lives of factory equipment. This is a key accounting policy as it reveals how the company estimates the useful lives of its assets.

The other options may be important information for understanding Limerick Enterprises, but they may not necessarily be disclosed in the Summary of significant accounting policies note.

Option d. Limerick records investments in equity securities at fair market value. All investments are in shares of publicly traded companies, is correct answer.