The Following Event Occurred After the Company's Year-End but Before

question 109

Essay

The following event occurred after the company's year-end but before the completion of the audit. For this subsequent event, determine whether the event:
•requires an adjustment to the year-end financial statements,
•requires note disclosure, or
•requires neither adjustment to recognized amounts nor disclosure.
A major client unexpectedly goes bankrupt and it is determined that you will get only 30% of the value of their account receivable as full and final settlement. (Justify your recommendation.)

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Definitions:

Diminishing Returns

Diminishing returns is an economic principle stating that as one factor of production increases while others are held constant, the additional output (returns) from the increased factor will eventually decrease.

Free Ride

Benefiting from a service or good without having to bear the cost or effort of obtaining it, usually in the context of public goods.

Illegal File Sharing

The unauthorized distribution of digital content, such as music, movies, or software, over the internet.

Digital Piracy

Digital piracy is the illegal copying, distribution, or use of digital media, such as software, music, movies, and video games, without authorization or payment to the copyright holder.