1. Madrasah Corporation issued its financial statements for the year ended December 31, 2014, on March 10, 2015. The following events took place early in 2015.

(a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share.

(b) On March 1, Madrasah determined after negotiations with the Internal Revenue Service that income taxes payable for 2014 should be $1,270,000. On December 31, 2014, income taxes payable were recorded at $1,100,000.

Discuss how the preceding post-balance-sheet events should be reflected in the 2014 financial statements.

2.

For each of the following subsequent (post-balance-sheet) events, indicate whether a company should

(a) adjust the financial statements,

(b) disclose in notes to the financial statements, or

(c) neither adjust nor disclose.

______ 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at

year-end.

______ 2. Introduction of a new product line.

______ 3. Loss of assembly plant due to fire.

______ 4. Sale of a significant portion of the company’s assets.

______ 5. Retirement of the company president.

______ 6. Prolonged employee strike.

______ 7. Loss of a significant customer.

______ 8. Issuance of a significant number of shares of common stock.

______ 9. Material loss is on a year-end receivable because of a customer’s bankruptcy.

______ 10. The hiring of a new president.

______ 11. Settlement of prior year’s litigation against the company (no loss was accrued).

______ 12. Merger with another company of comparable size.

Answer rating: 100% (QA)

1 a It is a subsequent event providing evidence about conditions that did not exist at the bal... View the full answer