For each of the following items, assume that Josh Feldstein, CPA, is expressing

Question

For each of the following items, assume that Josh Feldstein, CPA, is expressing an opinion on Scornick Company's ?nancial statements for the year ended December 31, 2011; that he completed ?eldwork on 17-25 January 21, 2012; and that he now is preparing his opinion to accompany the finnancial statements. In each item a subsequent event is described. This event was disclosed to the CPA either in connection with his review of subsequent events or after the date on which the auditor has obtained suf?cient appropriate audit evidence. Describe the financial statement effects, if any, of each of the following subsequent events. Each of the five items is independent of the other four and is to be considered separately. 1. A large account receivable from Agronowitz Company (material to ?nancial statement presentation) was considered fully collectible at December 31, 2011. Agronowitz suffered a plant explosion on January 25, 2012. Because Agronowitz was uninsured, it is unlikely that the account will be paid. 2. The tax court ruled in favor of the company on January 25, 2012. Litigation involved deductions claimed on the 2008 and 2009 tax returns. In accrued taxes payable Scornick had provided for the full amount of the potential disallowances. The Internal Revenue Service will not appeal the tax court's ruling. 3. Scornick's Manufacturing Division, whose assets constituted 45 percent of Scornick's total assets at December 31, 2011, was sold on February 1, 2012. The new owner assumed the bonded indebtedness associated with this property. 4. On January 15, 2012, R. E. Fogler, a major investment adviser, issued a negative report on Scornick's long-term prospects. The market price of Scornick's common stock subsequently declined by 40 percent. 5. At its January 5, 2012, meeting, Scornick's board of directors voted to increase substantially the advertising budget for the coming year and authorized a change in advertising agencies

Explanation / Answer

The uninsured level of plant will impact company’s going concern status.

It means Decrease in value of long term assets will impact or not?

Whether the company has sufficient plant and equipment to continue the trading?

Then, received a schedule it covers net assets value of the damaged plant calculate with non-current asset to find the correct value of damaged plant, and also receive the latest inventory records to calculate the inventory on the storage at the time of explosion.

The explosion is a un- adjusting post year-end event and the levels of damaged assets are material. So disclose the note in 2012 financial statements and write off the assets in 2013 financial statements.

2) Asking the required document support for the expenses spend for the litigation and litigation claim support document and that should be recorded in balance sheet under contingent asset.

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