Subsequent Events Facts:

You are performing an annual audit of a company with a December 31, 20X1 year-end. Your firm is planning to complete the audit on March 1, 20X2 and release the report on March 31, 20X2. On March 15, 20X2, two material subsequent events occur:

A fire caused extensive damage to the companys manufacturing plant in New Jersey.

A large customer went bankrupt. At December 31, 20X1, the Company had a receivable of $2,500,000 from this customer; at December 31, 20X1 the Company had established an allowance for doubtful accounts of $700,000 for this customer.

Required:

1. Explain whether each subsequent event is a Type 1 or Type 2 Subsequent Event.

2. What is the impact of each subsequent event on the companys audited financial statements for the year ended December 31, 20X1? Be specific as to whether (a) there will be an adjustment which will cause the companys balance sheet and / or income statement to change plus footnote disclosure, (b) there will only be footnote disclosure, or (c) there will be no impact to either the financial statements or the footnote disclosures.

3. How should your Audit Firm date its audit report?