Which one of the following subsequent events will least likely result in an adjustment to the financial statements?
A)Material change in the amount of settlement of a lawsuit which had been estimated at year end.
B)Bankruptcy of a customer who owes your client a material amount on open account at year end for which there is an inadequate allowance estimate.
C)Sale of a large block of inventory at a price materially below carrying value.
D)Signing of a letter-of-intent by the client to acquire 55% of another entity for stock.

Question

Quizplus · Accepted Answer

The signing of a letter-of-intent by the client to acquire 55% of another entity for stock is a non-material event that does not require an adjustment to the financial statements. A is incorrect because a material change in the amount of settlement of a lawsuit would require an adjustment. B is incorrect because the bankruptcy of a customer would require an adjustment to the allowance for doubtful accounts. C is incorrect because selling inventory at a price materially below carrying value would require a write-down of inventory and therefore an adjustment to the financial statements.

Which One of the Following Subsequent Events Will Least Likely