ExpertMedium1 markMultiple Choice
CPA · Question 53 · Area 3: Performing Procedures
Which of the following is a 'Type 2' subsequent event (Non-recognized event)?
Which of the following is a 'Type 2' subsequent event (Non-recognized 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.
A major business combination completed after the balance sheet date.
D.
Disposal of equipment at a price below book value, where the decline in value occurred before year-end.
How to approach this question
Type 2 = New thing happened after year-end. Did not exist before.
Full Answer
C.A major business combination completed after the balance sheet date.✓ Correct
Type 2 events provide evidence about conditions that did not exist at the date of the financial statements but arose subsequent to that date. A business combination after year-end is a classic Type 2 event requiring disclosure.
Common mistakes
Confusing customer bankruptcy (usually Type 1 because financial trouble existed) with new events.
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