ExpertHard1 markMultiple Choice
CPA · Question 70 · Area III: Procedures
Which of the following is a 'Type 2' subsequent event?
Which of the following is a 'Type 2' subsequent event?
Answer options:
A.
Bankruptcy of a customer who was deteriorating financially at year-end.
B.
Settlement of litigation based on events prior to year-end.
C.
Issuance of bonds after the balance sheet date.
D.
Disposal of equipment at a price below book value in January, indicating impairment at December 31.
How to approach this question
Type 2 = Non-recognized. Something NEW happened after Dec 31.
Full Answer
C.Issuance of bonds after the balance sheet date.✓ Correct
Issuance of bonds after the balance sheet date.
The issuance of bonds after year-end is a new financial event that did not exist at the balance sheet date. It is a Type 2 (Non-recognized) subsequent event that requires disclosure but not adjustment.
Common mistakes
Confusing events that confirm old conditions (Type 1) with new events (Type 2).
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