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:

Interaction Effect

Occurs in an analysis when the effect of one independent variable on a dependent variable differs across levels of another independent variable.

Mean Square

The average of the squares of the deviations or differences from the mean, often used in variance and regression analysis.

Within-Group Variance

The measure of how much the data points in a single group vary or deviate from the mean of that group.

Mean Square

Mean square is a statistical measure used in variance and regression analysis, representing an estimate of the variance of a dataset or the value of one variable's dependency on another.