Which of the following is a 'Type 2' subsequent event?

Answer options:

Bankruptcy of a customer who was deteriorating financially at year-end.

Settlement of litigation based on events prior to year-end.

Issuance of bonds after the balance sheet date.

Disposal of equipment at a price below book value in January, indicating impairment at December 31.

How to approach this question

Type 2 = Non-recognized. Something NEW happened after Dec 31.

Full Answer

C.Issuance of bonds after the balance sheet date.✓ Correct

The issuance of bonds after year-end is a new financial event that did not exist at the balance sheet date. It is a Type 2 (Non-recognized) subsequent event that requires disclosure but not adjustment.

Common mistakes

Confusing events that confirm old conditions (Type 1) with new events (Type 2).

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