Long and Short, CPAs, Were Auditing Island Corporation for the Year

question 56

Multiple Choice

Long and Short, CPAs, were auditing Island Corporation for the year ended December 31, 2020. On January 11, 2021, a major customer of Island Corporation declared bankruptcy as the result of an uninsured loss due to a major fire in their warehouse on January 8, 2021. As a result, a material accounts receivable from the customer was determined to be uncollectible. Long and Short, CPAs, would expect the client to

• A)record the loss on uncollectible accounts as a routine transaction in the year 2021.
• B)treat the loss as a subsequent event and provide a footnote about the loss in the 2020 financial statements.
• C)treat the loss as a subsequent event and adjust the 2020 financial statements to record the loss on uncollectible accounts.
• D)file a lawsuit against the customer in hopes of collecting some of the money owed to the client.

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Definitions:

Decided

Resolved or determined, often in the context of a judgment, verdict, or conclusion reached by a court or deliberative body.

Reported Case

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Headnote

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