Which one of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?
A) major purchase of a business that is expected to double the sales volume
B) settlement of litigation in excess of the recorded liability
C) sale of long-term debt or capital stock
D) loss of a plant as a result of a flood

Question

Quizplus · Accepted Answer

The settlement of litigation in excess of the recorded liability would require an adjustment to the financial statements before they could be issued. This is because the recorded liability would need to be increased to reflect the actual amount paid in the settlement. The other events listed may require disclosure in the footnotes to the financial statements, but would not require an adjustment to the financial statements themselves.

Which One of the Following Material Events Occurring Subsequent to the Balance