Whenever subsequent events are used to evaluate the amounts included in the statements, care must be taken to distinguish between conditions that existed at the balance sheet date and those that came into being after the end of the year.The subsequent information should NOT be incorporated directly into the statements if the conditions causing the change in valuation:
A) did not take place until after year-end.
B) took place before year-end.
C) occurred both before and after year-end.
D) are reimbursable through insurance policies.

Question

Quizplus · Accepted Answer

Subsequent information that arises after year-end should not be incorporated directly into the financial statements unless the conditions causing the change in valuation existed at the balance sheet date. If the conditions came into existence after year-end, adding them to prior financial statements would not be appropriate. Therefore, choice A is the correct answer. B and C are incorrect because in both cases, the conditions existed at or before year-end. D is irrelevant because it does not relate to the timing of events.

Whenever Subsequent Events Are Used to Evaluate the Amounts Included