Chapter 24: Question E24-2 (page 1447)
(Post-Balance-Sheet Events) 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.
- Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end.
- Introduction of a new product line.
- Loss of assembly plant due to fire.
- Sale of a significant portion of the company’s assets.
- Retirement of the company president.
- Prolonged employee strike.
- Loss of a significant customer.
- Issuance of a significant number of shares of common stock.
- Material loss on a year-end receivable because of a customer’s bankruptcy.
- Hiring of a new president.
- Settlement of prior year’s litigation against the company (no loss was accrued).
- Merger with another company of comparable size.
Short Answer
An entity adjusts the sums perceived in its financial statements to reflect altering events, but not to reflect non-adjusting events.