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Listed Below Are Material Events That Pertain to the Financial

Question 54

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Listed below are material events that pertain to the financial statements of the Henry Corporation as of December 31, 20X5. Your field work on this audit ended on January 31, 20X6, and your report was issued February 10, 20X6. Indicate the nature of each event by using the following code letters:

Premises:

Responses:

Loss from hurricane on February 5

Postaudit discovery of existing facts

Sale of marketable equity securities at a loss on January 8

None of the above

Unfavorable settlement of 20X5 patent infringement suit on January 25

Sale of a subsidiary on January 20

Additional assessment on March 1 pertaining to the 20X4 income tax return Additional assessment on March 1 pertaining to the 20X4 income tax return

Adverse court decision on February 15 pertaining to legality of ownership of

Bankruptcy of major customer due to fire loss on January 15

Issuance of additional capital stock on January 10

Obsolescence losses on inventory on January 12 due to extended downturn in product line sales

Resignation of chief executive officer on January 31

Write-off of an account receivable on January 17 resulting from bankruptcy proceeding begun in 20X5

Arrest of two company officers for fraud on February 15

Acquisition of a subsidiary on February 4

Sale on January 25 of common stock investment accounted for under the equity method of accounting

Additional assessment of a prior year’s income tax return on February 8

Premises:

Loss from hurricane on February 5

Sale of marketable equity securities at a loss on January 8

Unfavorable settlement of 20X5 patent infringement suit on January 25

Additional assessment on March 1 pertaining to the 20X4 income tax return Additional assessment on March 1 pertaining to the 20X4 income tax return

Adverse court decision on February 15 pertaining to legality of ownership of

Bankruptcy of major customer due to fire loss on January 15

Issuance of additional capital stock on January 10

Obsolescence losses on inventory on January 12 due to extended downturn in product line sales

Resignation of chief executive officer on January 31

Write-off of an account receivable on January 17 resulting from bankruptcy proceeding begun in 20X5

Arrest of two company officers for fraud on February 15

Acquisition of a subsidiary on February 4

Sale on January 25 of common stock investment accounted for under the equity method of accounting

Additional assessment of a prior year’s income tax return on February 8

Responses:

Postaudit discovery of existing facts

None of the above

Sale of a subsidiary on January 20

Correct Answer:

Premises:

Responses:

Loss from hurricane on February 5

Sale of marketable equity securities at a loss on January 8

Unfavorable settlement of 20X5 patent infringement suit on January 25

Additional assessment on March 1 pertaining to the 20X4 income tax return Additional assessment on March 1 pertaining to the 20X4 income tax return

Adverse court decision on February 15 pertaining to legality of ownership of

Bankruptcy of major customer due to fire loss on January 15

Issuance of additional capital stock on January 10

Obsolescence losses on inventory on January 12 due to extended downturn in product line sales

Resignation of chief executive officer on January 31

Write-off of an account receivable on January 17 resulting from bankruptcy proceeding begun in 20X5

Arrest of two company officers for fraud on February 15

Acquisition of a subsidiary on February 4

Sale on January 25 of common stock investment accounted for under the equity method of accounting

Additional assessment of a prior year’s income tax return on February 8