Laura ShiltsChapter 24 HomeworkE24-1 (L02) (Post-Balance-Sheet Events) Madrasah Corporation issued its financial statements for the year ended December 31, 2017, on March 10, 2018. The following events took place early in 2018.InstructionsDiscuss how the preceding post-balance-sheet events should be reflected in the 2017 financial statements.(a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share.The issuance of common stock is an example of a subsequent event. A subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. Depending on the situation, such events may or may not require disclosure in an organization's financial statements. Examples of situations that do not trigger an adjustment to the financial statements if they occur after the balance sheet date but before financial statements are issued or are available to be issued are:A business combinationChanges in the value of assets due to changes in exchange ratesDestruction of company assetsEntering into a significant guarantee or commitmentSale of equitySettlement of a lawsuit where the events causing the lawsuit arose after the balance sheet dateSince the issuance of common stock is a sale of equity no adjustment to the financial statements is recorded, but this event should be disclosed in either a note, supplemental schedule or in proforma financial data.(b) On March 1, Madrasah determined after negotiations with the Internal Revenue Service that income taxes payable for 2017 should be $1,270,000. At December 31, 2017, income taxes payable were recorded at $1,100,000.The change in amount of taxes payable qualifies as a subsequent event. A subsequent event is an event that occurs after a reporting period, but before the financial statements for that period have been issued or are available to be issued. This event affects the amount previously estimated and should result in the adjustment of the financial statements. Madrasah will increase tax expense inthe current income statement by (1,270,000 – 1,100,000 = 170,000) $170,000. The balance sheet will also have to be amended to reflect a taxes payable increase and retained earnings decrease of$170,000.
Your answer is correct. 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. Sr. No. Subsequent (Post-Balance-Sheet) Events 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end. Adjust the Financial Statements 2. Introduction of a new product line. Neither Adjust nor Disclose. 3. Loss of assembly plant due to fire. Disclose in Notes to the Financial Statements 4. Sale of a significant portion of the company’s assets. Disclose in Notes to the Financial Statements 5. Retirement of the company president. Neither Adjust nor Disclose. 6. Prolonged employee strike. Neither Adjust nor Disclose. 7. Loss of a significant customer. Neither Adjust nor Disclose. 8. Issuance of a significant number of shares of common stock. Disclose in Notes to the Financial Statements 9. Material loss on a year-end receivable because of a customer’s bankruptcy. Adjust the Financial Statements 10. Hiring of a new president. Neither Adjust nor Disclose. 11. Settlement of prior year’s litigation against the company (no loss was accrued). Adjust the Financial Statements 12. Merger with another company of comparable size. Disclose in Notes to the Financial Statements Exercise 24-3 Your answer is correct. Carlton Company is involved in four separate industries. The following information is available