Identify the two primary types of subsequent events that require consideration by management and evaluation by the auditor and give two examples of each type.
What will be an ideal response?
Type I. Subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet and affect the estimates that are part of the financial statement preparation process. Examples include declaration of bankruptcy by a customer with an outstanding accounts receivable balance (the deterioration existed at the balance sheet date) and the settlement of litigation at an amount different from the amount already recorded on the books.
Type II. Subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date. Examples include a decline in the market value of securities held for temporary investment or resale during the subsequent period and loss due to natural disaster after the balance sheet date.
You might also like to view...
[APPENDIX] Wave Corporation is determining its income tax liability. It has one machine that cost $30,000 with a 4-year life and no salvage value. Wave is using an accelerated depreciation method for tax purposes. For accounting purposes, Wave has decided to use the straight-line method. Which of the following statements is true?
a. There will be a temporary difference between accounting income and income for tax purposes. b. There will be a permanent difference between accounting income and income for tax purposes. c. Wave's accounting income and income for tax purposes will be equal. d. Accounting income will be lower than income for tax purposes, especially in the early years of the asset's life.
Which of the following symbols indicate the need to review the assignment instructions?
A) Rev B) Assign C) Obv D) Dir
A credit balance in the account Allowance to Adjust Long-Term Investments to Market is disclosed in the financial statements as a
A) regular account in the stockholders' equity section of the balance sheet. B) contra account to Long-Term Investments. C) note to the financial statements. D) current asset.
The first section of the income statement reports cash flows from operating activities.
Answer the following statement true (T) or false (F)