The Fieldwork for the December 31, 2013 Audit of Schmidt

question 41

Short Answer

The fieldwork for the December 31, 2013 audit of Schmidt Corporation ended on March 17, 2014.The financial statements and auditor's report were issued on March 29, 2014.In each of the material situations (1 through 5)below, indicate the appropriate action (a, b, c ).The possible actions are as follows:
a.Adjust the December 31, 2013 financial statements.
b.Disclose the information in a footnote in the December 31, 2013 financial statements.
c.No action is required.
The situations are as follows:
________ 1.On March 1, 2014, one of Schmidt Corporation's major customers declared bankruptcy.The customer's financial condition in 2013 was deteriorating and they owed Schmidt Corporation a large sum of money as of the balance sheet date.
________ 2.On February 17, 2014, Schmidt Corporation sold some machinery for its book value.
________ 3.On February 20, 2014, a flood destroyed the entire uninsured inventory in one of Schmidt's warehouses.
________ 4.On January 5, 2014, there was a significant decline in the market value of the securities held for resale from their value as of the balance sheet date.
________ 5.On March 10, 2014, the company settled a lawsuit at an amount significantly higher than the amount recorded as a liability on the books as of the balance sheet date.

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Definitions:

Contract Curve

In an Edgeworth box diagram, it represents the set of optimal distribution points for two traders based on their preferences.

Efficient Input Use

Utilization of inputs in a manner that maximizes the output or minimizes the cost under given technology and constraints.

MRTS

The Marginal Rate of Technical Substitution measures the rate at which one input can be substituted for another input in the production process, while keeping output constant.

Pareto Optimality

A distribution of resources where no one can be made better off without causing detriment to at least one other person.