Question

Keystone Corporation’s financial statements for the year ended December 31, 2017, were authorized for issue on March 10, 2018. The following events took place early in 2018.

1. On January 10, 10,000 ordinary shares of \(5 par value were issued at \)66 per share.
2. On March 1, Keystone determined after negotiations with the taxing authorities that income taxes payable for 2017 should be \(1,320,000. At December 31, 2017, income taxes payable were recorded at \)1,100,000.

Instructions

Discuss how the preceding subsequent events should be reflected in the 2017 financial statements.

Short answer

No alteration should be reported for issued shares. Keystone should increase income tax by $220,000.

Step-by-step solution

Meaning financial statement

A company's financial statements provide a precise picture of its financial success. They refer to it as assets and liabilities rather than profit and loss. It's the same as it was at the end of all accounting forms where these explanations might be presented.

Discussing the preceding subsequent events that should be reflected in the 2017 financial statements

1. The issuance of standard offers is a case of a consequent event which gives proof of almost conditions that did not exist at the explanation of the financial position date but emerged consequent to that date. Subsequently, no alteration to the financial statements is recorded. In any case, this event ought to be disclosed either in a note, a supplemental plan, or even proforma financial data.

2. The changed estimate of income taxes payable is an illustration of a consequent event that gives extra proof around conditions that existed at the explanation of the financial position date. The pay assessment liability existed on December 31, 2017, but the sum was not certain.