Exercise 24-2 For each of the following subsequent (post-balance-sheet) events,

Question

Exercise 24-2 For each of the following subsequent (post-balance-sheet) events, indicate whether a company should adjust the financial statements, disclose in notes to the financial statements, or neither adjust nor disclose. Sr. No. Subsequent (Post-Balance-Sheet) Events 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end. 2. Introduction of a new product line. 3. Loss of assembly plant due to fire. 4. Sale of a significant portion of the company's assets. 5. Retirement of the company president. nor Discl Prolonged employee strikce 7. Loss of a significant customer 8. Issuance of a significant number of shares of common stock. 9. Material loss on a year-end receivable because of a customer's bankruptcy. 10. Hiring of a new president. 11. Settlement of prior year's litigation against the company (no loss was accrued). 12. Merger with another company of comparable size.

Explanation / Answer

Sr no subsequent (post-balance sheet) events action explanation 1 settlement of federal tax case at a cost considerably in excess of the amount expected at year end Adjust the financial statement the case is settled amout has to paid therre is cash outflow hence should be adjusted in financial statement 2 Introduction of a new product line Neither adjust nor disclose this is normal business transcation 3 loss of assembly plant due to fire Disclose in notes to the financial statements this will impact the revenues in future hence disclosure of the same in notes 4 sale of significant portion of the company asset Disclose in notes to the financial statements this will impact the revenues in future hence disclosure of the same in notes 5 Retirement of the company president Neither adjust nor disclose this is normal business transcation 6 prolonged employee strike Neither adjust nor disclose financial implication cannot be determined 7 loss of significant customer Neither adjust nor disclose financial implication cannot be determined 8 issuance of a significant number of shares of common stock Disclose in notes to the financial statements disclosue in notes required to show the changes in equity 9 material loss on a year end receivable because of a customer bankruptcy Adjust the financial statement there will be loss as customer cannot pay and with certaininry amount cannot be revovered hence the financial implication should be stated in financial statements 10 hiring of a new president Neither adjust nor disclose this is normal business transcation 11 settlement of prior year's litigation against the company(no loss was accrued) Disclose in notes to the financial statements no loss or profit hence to be disclosed in notes to accounts as this will be reduced from contingent liability 12 Merger with another company of comparable size Disclose in notes to the financial statements disclosure in notes necessary as per GAAP

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