Question

The auditor has completed her work on the financial statements of Leslie Kwok Incorporated (LKI) for the year ended 31 December 20X7. The auditor signed her audit opinion on 5 March 20X8; LKI’s Board of Directors has not yet approved the statements. The following transactions and events occurred after 31 December 20X7:
a. On 27 January, LKI entered into a long- term lease for a private airplane for the company president and CEO. The lease requires payments of US$ 75,000 per month for 60 months.
b. On 28 January, LKI acquired all of the shares of Phan Limited by issuing LKI shares in exchange. The acquisition more than doubled the size of LKI, and the former shareholders of Phan now have a majority of the votes in LKI.
c. On 15 February, the Board of Directors of LKI decided to discontinue a major segment of the company’s business due to continuing losses and a change of strategy.
d. The Royal Toronto Bank extended a $ 50 million line of credit to LKI on 5 March.
e. One of the company’s major customers declared bankruptcy on 22 March. The customer accounted for 27% of LKI’s revenue in 20X7.
f. On 31 March, LKI reached an agreement with a major institutional investor to issue $ 500 million in secured debentures through a private placement.
g. A new Board of Directors was elected on 7 April.
h. On 10 April, the new directors cancelled the lease on the private airplane. The contract calls for a cancellation penalty of US$ 1 million.

Required:
Discuss how each item should be reported in LKI’s 20X7 financial statements as a subsequent event, if at all.



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  • CreatedFebruary 17, 2015
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