Question

2. The fieldwork for the December 31, 2007 audit of Treble Corporation ended on March 17, 2008. The financial statements and auditor's report were issued and mailed to stockholders on March 29, 2008. In each of the material situations (1 through 4) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows: a. Adjust the December 31, 2007 financial statements. b. Disclose the information in a footnote in the December 31, 2007 financial statements. c. Request the client revise and reissue the December 31, 2007 financial statements. The revision should involve an adjustment to the December 31, 2007 financial statements. d. Request the client revise and reissue the December 31, 2007 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2007 financial statements. e. No action is required. The situations are as follows: ________ 1. On January 16, 2008, a lawsuit was filed against Treble for a patent infringement action that allegedly took place in early 2005. In the opinion of Treble's attorneys, there is a reasonable (but not probable) danger of a significant loss to Treble. ________ 2. On February 19, 2008, Treble settled a lawsuit out of court that had originated in 2002 and is currently listed as a contingent liability. ________ 3. On March 30, 2008, Treble settled a lawsuit out of court that had originated in 2004 and is currently listed as a contingent liability. ________ 4. On April 7, 2008, you discovered that a debtor of Treble went bankrupt on January 22, 2008, due to a major uninsured fire that occurred on January 2, 2008.

Answer 1

1. b there is probably and not assuring so disclose the information I'm footnote.
2. a related to balance sheet so adjust in financial statement during the year.
3. e related to balance sheer but after the balance sheet date and thus no action is required.
4. d Bankruptcy occurs after balance sheet date but pertaining to an item on balance sheet having significant impact on going concern of an organisation and thus has to be included in financial statements through a foot note.