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For each of the following items, assume that Josh Feldstein, CPA, is expressing an
opinion on Scornick Companys financial statements for the year ended December 31,
2015; that he completed fieldwork on January 21, 2016; and that he now is preparing
his opinion to accompany the financial statements. In each item a subsequent event is
described. This event was disclosed to the CPA either in connection with his review
of subsequent events or after the date on which the auditor has obtained sufficient
appropriate audit evidence. Describe the financial statement effects, if any, of each
of the following subsequent events. Each of the five items is independent of the other
four and is to be considered separately.
1. A large account receivable from Agronowitz Company (material to financial
statement presentation) was considered fully collectible at December 31, 2015.
Agronowitz suffered a plant explosion on January 25, 2016. Because Agronowitz
was uninsured, it is unlikely that the account will be paid.
2. The tax court ruled in favor of the company on January 25, 2016. Litigation
involved deductions claimed on the 2012 and 2013 tax returns. In accrued taxes
payable, Scornick had provided for the full amount of the potential disallowances.
The Internal Revenue Service will not appeal the tax courts ruling.
3. Scornicks Manufacturing Division, whose assets constituted 45 percent of
Scornicks total assets at December 31, 2015, was sold on February 1, 2016. The
new owner assumed the bonded indebtedness associated with this property.
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590 Part 6 Completing the Audit and Reporting Responsibilities
mes32502_ch17_561-595.indd 590 10/14/15 04:01 PM
4. On January 15, 2016, R. E. Fogler, a major investment adviser, issued a negative
report on Scornicks long-term prospects. The market price of Scornicks com- mon stock subsequently declined by 40 percent.
5. At its January 5, 2016, meeting, Scornicks board of directors voted to increase
substantially the advertising budget for the coming year and authorized a change
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