Question

The following events and transactions related to David Company occurred after the balance sheet date of December 31, 2014, and before the financial statements were issued in 2015. None of the items is reflected in the financial statements as of December 31, 2014.
1. In order to secure a bank loan of $200,000, David pledged as collateral certain fixed assets with a net book value of $300,000. David applied for the loan on December 18, 2014, and the bank approved the loan on January 8, 2015.
2. On November 21, 2014, David initiated a lawsuit seeking $500,000 in damages from a firm that David claims infringed on its trademark. David’s attorneys have stated that the chances of winning and of getting the $500,000 are excellent.
3. On March 1, 2015, the IRS assessed David an additional $125,000 for the 2013 tax year. However, both the tax attorneys for David and the tax accountants have indicated that it is likely that the IRS will settle the government’s claim for $75,000.
4. On February 22, 2015, David issued bonds at an interest rate 2 percentage points above the LIBOR (London Interbank Offered Rate). This is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks.
5. A warehouse containing a significant portion of David’s inventory was destroyed by fire on January 30, 2015.
6. A supplier to whom David owes $15,000 declared bankruptcy on February 3, 2015.

Required:
Indicate whether the item would be reported in David Company’s 2014 financial statements or in the notes to the financial statements, and what information would be reported. Assume that each of these events is considered material.



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  • CreatedSeptember 10, 2014
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