Crankwell Inc. is preparing its annual financial statements and annual report to stockholders. Management wants to be

Question:

Crankwell Inc. is preparing its annual financial statements and annual report to stockholders. Management wants to be sure that all of the necessary and proper disclosures have been incorporated into the financial statements and the annual report. Two classes of items that have an important bearing on the financial statements are subsequent events and contingent liabilities. The financial statements could be materially inaccurate or misleading if proper disclosure of these items is not made.

Required:

a. With respect to subsequent events

1. Define what is meant by a subsequent event.

2. Identify two types of subsequent events and explain the appropriate financial statement presentation of each type.

3. What are the procedures that should be performed to ascertain the existence of sub-sequent events?

b. With respect to contingent liabilities

1. Identify the essential elements of a contingent liability.

2. Explain how a contingent liability should be disclosed in the financial statements.

c. Explain how a subsequent event may relate to a contingent liability. Give an example to support your answer.

Contingent liabilities
A contingent liability is an obligation of business related to an uncertain future event. The business must record it in its financial statements if the amount can be reliably estimated and it is probable that amount will be paid by business as a... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...