ExpertMedium1 markMultiple Choice
CPA · Question 66 · Area III: Performing Procedures
Which of the following is a 'Type 2' subsequent event?
Which of the following is a 'Type 2' subsequent event?
Answer options:
A.
Bankruptcy of a customer who was in financial difficulty at the balance sheet date.
B.
Settlement of litigation for an event that occurred before the balance sheet date.
C.
Issuance of significant amount of stock after the balance sheet date.
D.
Disposal of equipment at a price below book value, where the decline in value occurred gradually over the year.
How to approach this question
Type 2 = New News. Did the event happen *after* Dec 31? Yes. Did the condition exist *before*? No. -> Disclose.
Full Answer
C.Issuance of significant amount of stock after the balance sheet date.✓ Correct
Type 2 events provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date. Issuing stock is a new event. It requires disclosure but not adjustment.
Common mistakes
Confusing Type 1 and Type 2.
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