Question

The following events and transactions related to David Company occurred after the balance sheet date of December 31, 2017, and before the financial statements were issued in 2018. None of the items is reflected in the financial statements as of December 31, 2017.

1. A warehouse containing a significant portion of David’s inventory was destroyed by fire on January 30, 2018.

2. A supplier to whom David owes $15,000 declared bankruptcy on February 3, 2018.

Required:

Indicate whether the item would be reported in David Company’s 2017 financial statements or in the notes to the financial statements, and what information would be reported. Assume that each of these events is considered material.

Answer 1

Both the events given in the question are non-adjusting evens occuring after balance sheet date. Hence no provision is required to be made in the financial statement as of December 31, 2017. However, these events are material and hence required to be disclosed by way of Notes to financial statements. These are entirely new events which were not existing on balance sheet date and therefore above treatment has been prescribed by generally accepted accounting principles(GAAP).

The above information together with the amount needs to be disclosed in notes to financial statement.