Taliah Poper is reviewing your firm's audit clients for subsequent events from the prior year and note
Question:
Taliah Poper is reviewing your firm's audit clients for subsequent events from the prior year and note the following:
1. XYZ Corp. has a fiscal year end of December 31, Year 1. In January Year 2, XYZ learned that a major client declared bankruptcy and that XYZ will only receive 40% of the value of the client's outstanding receivables recorded at year-end. XYZ does not expect the 2020 financial statements to be authorized for issue until February Year 2.
2. JHK Inc. is a pet store chain with eight locations and a June 30, year 1, year-end. On July 30, management decided to close two stores due to unfavorable sales growth. The financial statements will be authorized for issue on August 15, 2020.
3. In January year 2, NOP Corp. determined that its computer inventory was impaired and would need to be written down by $5,000. The impairment existed in September 2019 but was undetected until January year 2. The NOP audit has a $25,000 materiality, and the company has a December 31 year-end. The year 1 financial statement will be authorized for issue on March 1, year 2.
4. ABC Corp.'s has a fiscal year end of March 31, year 1, and the financial statements will be authorized for issue in early June. In April just after ABC's year 1 end, there was an earthquake that caused material, uninsured damage to ABC Corp.'s plant and equipment.
Required:
For each audit client, prepare an analysis to determine whether the subsequent event is an adjusting event or a non-adjusting event.
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon