For each of the following items, assume that Josh Feldstein, CPA, is expressing an opinion on Scornick

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For each of the following items, assume that Josh Feldstein, CPA, is expressing an opinion on Scornick Company’s financial statements for the year ended December 31, 2013; that he completed fieldwork on January 21, 2014; and that he now is preparing his opinion to accompany the financial statements. In each item a subsequent event is described. This event was disclosed to the CPA either in connection with his review of subsequent events or after the date on which the auditor has obtained sufficient appropriate audit evidence. Describe the financial statement effects, if any, of each of the following subsequent events. Each of the five items is independent of the other four and is to be considered separately.
1. A large account receivable from Agronowitz Company (material to financial statement presentation) was considered fully collectible at December 31, 2013. Agronowitz suffered a plant explosion on January 25, 2014. Because Agronowitz was uninsured, it is unlikely that the account will be paid.
2. The tax court ruled in favor of the company on January 25, 2014. Litigation involved deductions claimed on the 2010 and 2011 tax returns. In accrued taxes payable, Scornick had provided for the full amount of the potential disallowances. The Internal Revenue Service will not appeal the tax court’s ruling.
3. Scornick’s Manufacturing Division, whose assets constituted 45 percent of Scornick’s total assets at December 31, 2013, was sold on February 1, 2014. The new owner assumed the bonded indebtedness associated with this property.
4. On January 15, 2014, R. E. Fogler, a major investment adviser, issued a negative report on Scornick’s long- term prospects. The market price of Scornick’s common stock subsequently declined by 40 percent.
5. At its January 5, 2014, meeting, Scornick’s board of directors voted to increase substantially the advertising budget for the coming year and authorized a change in advertising agencies.

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...
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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Auditing and Assurance Services A Systematic Approach

ISBN: 978-1259162343

9th edition

Authors: William Messier, Steven Glover, Douglas Prawitt

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