Madrasah Corporation issued its financial statements for the year ended December

Question

Madrasah Corporation issued its financial statements for the year ended December 31, 2014, on March 10, 2015. The following events took place early in 2015.

Discuss how the preceding post-balance-sheet events should be reflected in the 2014 financial statements.

(a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share. (b) On March 1, Madrasah determined after negotiations with the Internal Revenue Service that income taxes payable for 2014 should be $1,270,000. At December 31, 2014, income taxes payable were recorded at $1,100,000.

Explanation / Answer

Events occurring after the balance sheet date are those significant events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are

approved by the Board of Directors in the case of a company, and, by the corresponding approving authority in the case of any other entity.

Two types of events can be identified:

(a) those which provide further evidence of conditions that existed at the balance sheet date; and

(b) those which are indicative of conditions that arose subsequent to the balance sheet date

a) Common stock will not be recorded in 2014 Financial statement as no conditions mentioned above are satisfied.

b) Tax payable: This will affect the Financials of 2014 and tax payable will be recorded at $1,270,000.

In this scenario event was existing at the time fianacial year and subsequent event has confirmed the liability before the financial statements were released. Additional $170,000 will be recorded in 2014 Financial statements

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