Question

Given the following three subsequent events (unrelated) for the December 31, 2018 year-end:

i. On January 15, 2019, a contingent liability was settled.

ii. On January 25, 2019 management disposed of a business segment representing 40% of the total assets

iii. On January 31, 2019, management issued new common stock.

The audit report date is February 2, 2019.

State clearly the type of subsequent event (Type I or Type II), if any, and the required impact on the financial statements.

Answer 1

SUBSEQUENT EVENTS; EVENTS THAT OCCUR BETWEEN COMPANY"S YEAR END PERIOD AND DATE ON WHICH COMPANY ISSUES FINANCIAL STATEMENTS.

TWO TYPES OF SUBSEQUENT EVENTS : 1)ADJUSTING EVENT (TYPE 1)

2) NON ADJUSTING EVENTS (TYPE 2)

1)ADJUSTING EVENT ; WHICH PROVIDES ADDITIONAL INFORMATION IN RELATION TO CONDITION EXISTED ON BALANCE SHEET DATE AND FINANCIAL STATEMENT ARE NEED TO BE ADJUSTED

2)NON ADJUSTING EVENTS :PROVIDE NEW  INFORMATION ABOUT A CONDITION THAT DOES NOT EXIST ON BALANCE SHEET DATE AND NO ADJUSTMENT IS REQUIRED , I SHOULD BE DISCLOSED IN FINANCIAL STATEMENTS

(ANS) 1) CONTINGENT LIABILITY WAS SETTLED IS AN ADJUSTING EVENT(TYPE1) , SINCE AT THE TIME OF SETTLEMENT IT BECOMES ACTUAL LIABILITY SHOULD BE ADJUSTED ACCORDINGLY IN FINANCIAL STATEMENT

2)SINCE IT IS A REPORTABLE SEGMENT , IT IS AN ADJUSTING EVENT (TYPE1) SHOULD BE ADJUSTED IN FINANCIAL STATEMENT

3)ISSUE OF NEW STOCK ,IT IS A NEW INFORMATION AND THE CONDITION IS NOT EXISTED ON BALANCE SHEET DATE .THEREFORE IT IS NON ADJUSTING EVENT (TYPE 2)