Adapted AICPA Task$-$Based Simulation

In connection with your audit of the financial statements of Hollis Mfg$.$ Corporation for the year ended

December $31,20$X$3,$ your review of subsequent events disclosed the following items:

a$.$ January $7,20$X$4$: The mineral content of a shipment of ore en route to Hollis Mfg$.$ Corporation on

December $31,20$X$3,$ was determined to be $72$ percent. The shipment was recorded at year$-$end at an

estimated content of $50$ percent by a debit to Raw Materials Inventory and a credit to Accounts Payable

in the amount of $$82,400.$ The final liability to the vendor is based on the actual mineral content of the

shipment.

b$.$ January $15,20$X$4$: Following a series of personal disagreements between Ray Hollis, the president, and

his brother$-$in$-$law, the treasurer, the latter resigned, effective immediately, under an agreement whereby

the corporation would purchase his $10$ percent stock ownership at book value as of December $31,20$X$3.$

Payment is to be made in two equal amounts in cash on April $1$ and October $1,20$X$4.$ In December, the

treasurer had obtained a divorce from his wife, who is Ray Hollis's sister.

c$.$ January $16,20$X$4$: As a result of reduced sales, production was curtailed in mid$-$January and some

workers were laid off.

d$.$ On January $18,20$X$4,$ a major customer filed for bankruptcy. The customer's financial condition had

been degenerating over recent years.

e$.$ On January $28,20$X$4,$ a famous analyst who followed the industry provided a negative report on his

expectations concerning the short and intermediate term for the industry.

$1.$ For each of the subsequent events, indicate whether they should result in:

Adjustment$-$an adjusting entry as of $20x3.$

Consider Disclosure$-$consideration of note disclosure as of $20x3.$

$2.$ Depending upon the details of the circumstances involved, some of the events may result in neither

adjustment nor note disclosure. Select the two events least likely to be reflected $($resulting in adjustment

or disclosure$)$ in the financial statements.

When answering each of the situations should describe the basis for your conclusions. Give explaination and reasons