Long and Short,CPAs,were Auditing Island Corporation for the Year Ended

question 20

Multiple Choice

Long and Short,CPAs,were auditing Island Corporation for the year ended December 31,2017.On January 11,2018,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 8,2018.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 2018.
• B)Treat the loss as a subsequent event and provide a footnote about the loss in the 2017 financial statements.
• C)Treat the loss as a subsequent event and adjust the 2017 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:

Dividends

Earnings distributed by a company to its shareholders, usually in the form of cash or additional shares.

Consolidated Retained Earnings

The total accumulated profits of a parent company and its subsidiaries after dividends are paid, as shown in consolidated financial statements.

Equity Method

An accounting practice where an investor records its proportional share of investee profits or losses, reflecting the changing value of its investment over time.

Consolidated Net Income

The total net income of a parent company and its subsidiaries after removing the effects of intercompany transactions.