Below are several events that occur after your company’s year-end but before the completion of the audit.
a. There is a fire at the company’s only warehouse; the company' has insufficient fire insurance to replace the warehouse and contents such that a material loss will result and operations will be curtailed for six months.
b. There is a significant fall in the market price of a major portion of inventory' due to new technology' making the existing items obsolete. The market price is lower than the current carrying value.
c. A new competitor enters the marketplace, which will result in serious price competition and, likely, reduced income next year.
d. New technology makes a major capital asset redundant or causes it to lose significant fair market and salvage value.
e. A major client unexpectedly goes bankrupt and it is determined that you will get 30% of the value of the accounts receivable as full and final settlement.
f. The company experiences a major labor strike. Workers are still on strike when the audit is finished. Does your answer change if this strike might force the company into bankruptcy?
Required:
For each of the above subsequent events, determine whether the event:
■ Requires an adjustment to the year-end financial statements,
■ Requires note disclosure, or
■ Requires neither adjustment to recognized amounts nor disclosure.
Justify your recommendation.