ABC Inc's largest customer declared bankruptcy shortly after the company's fiscal year end but well before the financial statements for the last year were issued. The company accounted for roughly 80% ABC's revenues. On the date of bankruptcy, the company owed ABC Inc. $500,000 for purchases it made from ABC Inc during the preceding fiscal year. Given the above, what should the company do from an accounting/financial reporting standpoint?
A) Will not disclose the event and the estimated amount uncollectible in a note to the financial statements.
B) Disclose the event as part of management's M, D & A (Management Discussion and Analysis).
C) Both disclose the event and the estimated amount uncollectible in a note to the financial statements and accrue for the estimated amount uncollectible.
D) No action is required.

Question

Quizplus · Accepted Answer

When a company's largest customer declares bankruptcy, it is a significant event that must be disclosed in the financial statements. The company should disclose the event and the estimated amount uncollectible in a note to the financial statements. Additionally, the company should accrue for the estimated amount uncollectible as it is a reasonable estimate of loss. Therefore, both options (C) are the best course of action.

ABC Inc's Largest Customer Declared Bankruptcy Shortly After the Company's