At December 31, 2018, Coburn plc has assets of £10,000,000, liabilities of £6,000,000, share capital of £2,000,000 (representing 2,000,000 ordinary shares at £1 par), and retained earnings of £2,000,000. Net sales for the year 2018 were £18,000,000, and net income was £800,000. You are making a review of subsequent events on February 13, 2019, and you find the following.
1. On February 3, 2019, one of Coburn's customers declared bankruptcy. At December 31, 2018, this company owed Coburn £300,000, of which £60,000 was paid in January 2019.
2. On January 18, 2019, one of the three major plants of the client burned.
3. On January 23, 2019, a strike was called at one of Coburn's largest plants, which halted 30% of its production. As of today (February 13), the strike has not been settled.
4. A major electronics enterprise has introduced a line of products that would compete directly with Coburn's primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor has been able to achieve quality similar to that of Coburn's products but at a price 50% lower. Coburn officials say they will meet the lower prices, which are high enough to cover variable manufacturing and selling costs but which permit recovery of only a portion of fixed costs.
5. Merchandise traded in the open market is recorded in the company's records at £1.40 per unit on December 31, 2018. This price had prevailed for 2 weeks, after release of an official market report that predicted vastly enlarged supplies; however, no purchases were made at £1.40. The price throughout the preceding year had been about £2, which was the level experienced over several years. On January 18, 2019, the price returned to £2, after public disclosure of an error in the official calculations of the prior December, correction of which destroyed the expectations of excessive supplies. Inventory at December 31, 2018, was on a lower-of-cost-or-net realizable value basis.
6. On February 1, 2019, the board of directors adopted a resolution accepting the offer of an investment banker to guarantee the marketing of £1,200,000 of preference shares.
Instructions
State in each case how the 2018 financial statements would be affected, if at all.