Subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements?
A) Sale of an issue of new stock for $500,000 on January 30.
B) Settlement of a damage lawsuit for a customer's injury sustained February 15 for $10,000.
C) Settlement of litigation in February for $100,000 that had been estimated at $12,000 in the December 31 financial statements.
D) Storm damage of $1 million to the entity's buildings on March 1.

Question

Quizplus · Accepted Answer

The settlement of litigation in February for $100,000 that was estimated at $12,000 in the December 31 financial statements indicates a material misstatement in the financial statements, and requires an adjustment to reflect the true amount of the liability. This would necessitate a restatement of the financial statements for the year ended December 31. The other events occurred after December 31 and would not affect the financial statements for that period.

Subsequent Knowledge of Which of the Following Would Cause the Entity