Question 3

Howard Ltd is a manufacturing company that sells Gym equipment the audit of Howard Ltd for the year ended 30 June 20X0, the auditor lists the following items considered material for review by the engagement manager.

1.A $26,000 sale on 14 July 20X0 for Gym equipment was included in the inventory at a cost of $35,000.

2. Bonds were issued on 16 August 20X0 in the amount of $2,000,000.

3. Machine was purchased on 31 July 20X0 for the amount of $150,000.

4. A major customer filled for bankruptcy on 15 June 20X0.

5. A legal action in the amount of $150 000 was settled on 6 August 20X0 and is listed as a contingent liability on the financial statements.

6. A legal action was filed against Howard Ltd for an injury to a customer's employee using a tool sold to them by Howard Ltd.

7. Howard has had discussions with a larger tool company for possible merger or sale.

Required

a. Which of the above items are most likely to be considered subsequent events?

b. What if the appropriate treatment of each of these seven items on 30 June 20X2 financial statements assuming each one is material?

c. Distinguish between independence in fact and independence in appearance. State three activities that may not affect independence in fact but are likely to affect independence in appearance.