At year-end Marissa Albion sent out accounts receivable confirmations. One of the major customers of her client confirmed that they would not be able to pay off the receivable. The
Client subsequently went bankrupt and an aggrieved shareholder of Marissa's client sued her
Firm. What type of subsequent event was this?
A) Type 1
B) Type 2
C) Type 1 and 2
D) this was not a subsequent event

Question

Quizplus · Accepted Answer

This is a Type 1 subsequent event, which provides additional evidence about conditions that existed at the balance sheet date and affects the estimates inherent in the financial statements. The customer's inability to pay existed at year-end, and the bankruptcy confirms this condition.

At Year-End Marissa Albion Sent Out Accounts Receivable Confirmations