It is the end of 2010, and as an accountant for Newell Company, you are preparing its 2010 financial statements. On December 29, 2010, the management of Newell 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 2011 (after the 2010 financial statements have been issued). During 2010, the division earned a small operating income that is just enough for the company to report “record earning” for the year. However, the estimated fair value of the division at the end of 2010 is less than its net book value, so that management anticipates the component will be sold at a loss.
The president of Newell stops by your office and says to you “you have been doing a fine job. Keep up the good work, because you are heading for a promotion in early 2012. Once we report the record earnings for 2010, our stockholders and creditors will be happy. Then I think our earnings for 2011 will be high enough so that the loss we expect to report in 2011 on the sale of division will not look so bad.” After the president leaves your office, you continue preparing the 2010 financial statements.
From financial reporting and ethical perspectives, what information, if any, will you include about the upcoming sale of the division in the 2010 financial statements?
1. The codification: Revenue Recognition
A manager for a new company with which you are consulting state, “We will soon be making sales, and I was wondering when we should recognize the revenue from these sales?”
Search the codification and provide an answer for the manager that summarizes the related GAAP. Include a codification reference number for verification
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