Answer
a. The controller is right because the disposal of the Casino Knights Division amounts to a strategic shift, given that it caters for more than 15% of the income generated by Simpson Corp. This disposal should be treated as a discontinuing operation.
b. This item should be reported in the Management’s report for corrective strategies to be undertaken.
c. The transaction relating to the discontinued operations is material because it impacts the fairness and truthfulness of financial statements. Comparatively, the issue about the walkabout may not affect the financial statement's completeness, but it has implications on the performance of employees, which could, in turn, impact revenues. Moreover, the commission income is part of expenses; thus, it can impact the income statements if rates are reviewed. These two transactions are material; thus, they should be included in the income statement.
d. The issue of commission income has not impacted the EPS for now. Comparatively, the gains derived from the sale of Casino Knights Division will increase the EPS computed after adding the gains from Casino's sale to the income derived from operations.
Work Step by Step
a. The controller is right because the disposal of the Casino Knights Division amounts to a strategic shift, given that it caters for more than 15% of the income generated by Simpson Corp. This disposal should be treated as a discontinuing operation.
b. This item should be reported in the Management’s report for corrective strategies to be undertaken.
c. The transaction relating to the discontinued operations is material because it impacts the fairness and truthfulness of financial statements. Comparatively, the issue about the walkabout may not affect the financial statement's completeness, but it has implications on the performance of employees, which could, in turn, impact revenues. Moreover, the commission income is part of expenses; thus, it can impact the income statements if rates are reviewed. These two transactions are material; thus, they should be included in the income statement.
d. The issue of commission income has not impacted the EPS for now. Comparatively, the gains derived from the sale of Casino Knights Division will increase the EPS computed after adding the gains from Casino's sale to the income derived from operations.
