A client has a calendar year-end. Listed below are four events that occurred after December 31. Which one of these subsequent events might result in adjustment of the December 31 financial statements?
A) sale of a major subsidiary
B) adoption of accelerated depreciation methods
C) write-off of a substantial portion of inventory as obsolete
D) collection of 90% of the accounts receivable existing at December 31

Question

Quizplus · Accepted Answer

The write-off of a substantial portion of inventory as obsolete is a subsequent event that could result in adjustment of the December 31 financial statements because it could impact the reported inventory balance and cost of goods sold for the year-end. The sale of a major subsidiary and adoption of accelerated depreciation methods should have been reflected in the financial statements if they occurred before year-end. The collection of 90% of accounts receivable existing at December 31 is not a subsequent event that would impact the financial statements, as it simply represents the collection of receivables that existed at year-end.

A Client Has a Calendar Year-End