19-25 (Subsequent events) In connection with the audit of Flowmeter, Inc., for t

Question

19-25 (Subsequent events) In connection with the audit of Flowmeter, Inc., for the year ended
December 31, 20X0, Hirsch, CPA, is aware that certain events and transactions that took
place after December 31, 20X0, but before Hirsch issues his report dated February 8, 20X1,
may affect the company’s financial statements.
The following material events or transactions have come to his attention.
1. On January 3, 20X1, Flowmeter, Inc., received a shipment of raw materials from Canada.
The materials had been ordered in October 20X0 and shipped FOB shipping point in
November 20X0.
2. On January 15, 20X1, the company settled and paid a personal injury claim of a former
employee as the result of an accident that occurred in March 20X0. The company had not
previously recorded a liability for the claim.
3. On January 25, 20X1, the company agreed to purchase for cash the outstanding stock of
Porter Electrical Company. The acquisition is likely to double the sales volume of
Flowmeter, Inc.
4. On February 1, 20X1, a plant owned by Flowmeter, Inc., was damaged by a flood, resulting
in an uninsured loss of inventory.
5. On February 5, 20X1, Flowmeter, Inc., issued and sold to the general public $2 million in
convertible bonds.

Required
For each of the above events or transactions, indicate the audit procedures that should have
brought the item to the attention of the auditor and the form of disclosure in the financial
statements including the reasons for such disclosure. Organize your answers in the following
format:

ITEM NO. Audit Required Disclosures PROCEDURES AND REASONS

The format must be like this above.

Thank You I need help

Explanation / Answer

Audit required Disclosures Procedures & Reasons Record adjustment entry In FOB shipping , the sale is complete once the goods are shipped, hence the purchase is to be recorded once the goods are shipped in November 2010 Record adjustment entry As the claim of the employee was filed in March 10 , the liability of the claim needs to be recorded in FY 10 Disclosure required As the business combination has occurred after the balance sheet date, no adjustment is required only a disclosure of the facts is required Disclosure required As the fixed asset has been destroyed after the balance sheet date, no adjustment is required only a disclosure of the facts is required No adjustment or disclosure As this is an event occurred after the balance sheet required date and the disclosure of this fact will not affect the readers of the statement , hence disclosure is not required

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