API$14\mathrm{.}2($LO $2)$ Reporting subsequent events Brad Scarlett is reviewing the results of the subsequent

events audit procedures. Brad is writing a report for the audit partner based on these results and will be

attending a meeting tomorrow with the partner and representatives of the company to discuss them.

The issue will be whether the financial statements should be amended or additional notes included for

these subsequent events.

Many of the items are not material and Brad will recommend that no action be taken with respect to

these. However, there are several items that Brad believes are material and should be discussed at the

meeting. These are:

$1.$ The board is planning to issue shares in a private offering on February $15.$

$2.$ The share issue is to fund the purchase of a $60\%$ stake in another company. The negotiations are

in the final stages and although the contract is not yet signed, it will be signed by February $15.$

$3.$ A lawsuit was filed in court in the week after year$-$end claiming damages for illness allegedly

caused by chemicals used at a subsidiary company's manufacturing plant in the $2000$s$.$ This is

the tenth such lawsuit filed and the client has denied responsibility in all cases because it was

unreasonable to believe at that time that these chemicals had adverse health effects. The

claimant has new scientific evidence that counters this defense.

$4.$ The review of subsequent cash receipts has revealed that several of the receivables that were

considered doubtful have now been paid.

$5.$ The year$-$end for the company is December $31$ and the audit report is due to be signed on

February $20.$

Required

For each item, discuss what type of subsequent event it is and the appropriate treatment in the financial

statements.