Question

What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported.

a) Collection of a note written off in a prior period.

b) Issuance of a large preferred stock offering.

c) Acquisition of a company in a different industry.

e) Destruction of a major plant in a flood.

f) Death of the company’s chief executive officer (CEO).

g) Additional wage costs associated with settlement of a four-week strike.

h) Settlement of a federal income tax case at considerably more tax than anticipated at year-end.

Change in the product mix from consumer goods to industrial goods.

Short answer

The subsequent event must be reported and disclosed along with any changes in accounting policies.

Step-by-step solution

Meaning of Subsequent Events

The subsequent event is the accounting term for a monetary exchange that occurs after the completion of a balance sheet for an indicated period but recently with the full set of details relating to a company's money is ready.

Explaining the types of subsequent events.

There are two types of subsequent events:

1. Those that directly affect the financial statements must be recognized through appropriate changes.
2. Those which do not particularly affect the financial statements and require no change in the equations of account, but whose effects may be quite significant, maybe unveiled with fitting figures or the gauges shown.

Explaining the indication of the subsequent events that should be reported

a) Potentially alter the financial statements directly.

b) Disclosure.

c) Disclosure.

d) Disclosure.

e) Neither change nor disclosure is required.

f) Neither change nor disclosure is required.

g) Particularly potentially adjust financial statements.

h) Neither change nor disclosure is necessary.