Alpha Manufacturing, Inc. issued audited financial statements on March 10, 2009, for its year ended December 31, 2008. The following events occurred after December 31, 2008, but before the financial statements were issued.
1. Alpha Manufacturing received legal notification on January 18, 2009 that Conner Co. (one of the company’s customers) had filed for bankruptcy. Alpha Manufacturing’s December 31, 2008 Accounts receivable balance included receivables from Conner Co. in the amount of $92,500.
2. On February 23, 2009, Alpha’s board of directors voted to secure $50,000,000 in additional debt financing through an issue of 25-year debentures. Management has been working with an investment bank on this matter and plans to market the securities in the next month or two.
3. Alpha signed a contract with a major retailer on January 12, 2009 that is expected to increase sales by 20% over the next few years.
4, February 15, 2009 was not a good day for Alpha Manufacturing. On that date, a competitor introduced a new product that will render $27 million of Alpha’s inventory obsolete.
Alpha will also be forced to idle one of its production facilities and retool another as a result of this development.
Required Review Statement on Auditing Standards No. 1 on “Subsequent Events” from your library.
Determine the appropriate treatment of each of these events in Alpha Manufacturing’s 2008 financial statements. Assume that each of these events is considered material.