Question 1

On January 15, Year 2, before the Year 1 financial statements were issued, a customer of Apex Corp. declared bankruptcy due to a fire that occurred on January 10, Year 2. The customer owed Apex $50,000 at December 31, Year 1. How should this event be treated in the Year 1 financial statements?

Accepted Answer

Determine if the condition existed at the Balance Sheet date. If yes -> Adjust (Type 1). If no (arose after) -> Disclose (Type 2).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Assuming all bankruptcies are Type 1 events. Usually they are, but if a specific post-BS date event caused it (like a fire), it is Type 2.

On January 15, Year 2, before the Year 1 financial statements were issued, a customer of Apex Corp. declared bankruptcy due to a fire that occurred on January 10, Year 2. The customer owed Apex $50,000 at December 31, Year 1. How should this event be treated in the Year 1 financial statements?

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