Question

The following independent events occurred after the balance sheet date of December 31, 2018, but before the issuance of the balance sheet on March 1, 2019, of Apple Company:

a.	A loss on an account receivable from sale made in November 2018. The customer filed for bankruptcy during January 2019.
b.	A lawsuit was settled on January 15, 2019, that arose from an accident with bodily injuries on Apple’s property on December 1, 2018.
c.	A customer lost two-thirds of its productive capacity as a result of a major hurricane during October 2018 and files for bankruptcy on February 1, 2019. The customer owed Apple for a sale on account that occurred during September 2018.
d.	Apple completed a sale of additional common stock on February 15, 2019.
e.	A customer owing Apple for a sale recorded as a receivable on December 12, 2018, lost two-thirds of its productive capacity as a result of a major fire on February 1, 2019.

For each of these events, describe how and why the event should be treated in the financial statements and accompanying notes of Apple.

Answer 1

Explanation:

(i) Adjustable events: Those events which are know on the balance sheet date (Dec 31,2018) should be adjusted in the financial statements. If any uncertainties happened which may leads to discontinuation of operations then also that event should be treated as Adjustable event even though it is not know at the balance sheet date. Example: Loss due to fire, earthquake etc.

(ii) Non-adjustable events: Those events which are not known on the balance sheet date (Dec 31,2018 should be disclosed as Notes to accounts.

a.A loss on an account receivable from sale made in November 2018. The customer filed for bankruptcy during January 2019:

Adjustable event if customer's poor financial health already known on the balance sheet date. It should be adjusted to the financial statements

b. A lawsuit was settled on January 15, 2019, that arose from an accident with bodily injuries on Apple’s property on December 1, 2018.

Non-adjustable event because it is a contingent event. It should be disclosed under Notes of Apple.

c.A customer lost two-thirds of its productive capacity as a result of a major hurricane during October 2018 and files for bankruptcy on February 1, 2019. The customer owed Apple for a sale on account that occurred during September 2018.

Adjustable event because customer poor financial health already known on the balance sheet date . It should be adjusted to the financial statements of balance sheet date.

d.Apple completed a sale of additional common stock on February 15, 2019.

Non-adjustable event.

e.A customer owing Apple for a sale recorded as a receivable on December 12, 2018, lost two-thirds of its productive capacity as a result of a major fire on February 1, 2019.

Non-adjustable event because major casualty loss of customer occur after the balance sheet date.