Unit 10 Theory Questions: Subsequent Events The following events occurred in independent cases, but in each instance the event happened after the close of the fiscal year under audit but before the financial statements were authorized for issue, which is also the audit report data. For each case, state what impact, if any, you would expect on the financial statements (and notes). The Balance Sheet date in each instance is December 31, 20X8.

On December 31, the commodities handled by the company had been traded in the open market for $1.40 per kilogram. This price had prevailed for two weeks, following an official market report that predicted vastly enlarged supplies; however, no purchases were made at $1.40. The price throughout the preceding year, and several prior years, had been about $2. On January 18, 20X9, the price returned to $2, following disclosure of an error in the official calculations of the prior Decembercorrection of which destroyed the expectations of excessive supplies. Inventory at December 31, 20X8, had been valued on a lower-of-cost-and-net-realizable-value basis, using the prevailing price known at that time, $1.40.

On February 1, 20X9, the board of directors adopted a resolution accepting an investment bankers offer to guarantee the marketing of $100 million of preferred shares.

On January 22, 20X9, one of the auditees three major plants burned down, a $50 million loss that was covered to $40 million by insurance.

This company has a wholly owned but not consolidated subsidiary producing oil in a foreign country. A serious rebellion began in that country on January 18, 20X9, and continued beyond the completion of your audit work. There has been extensive coverage of the fighting here.

During its fiscal year ending December 31, 20X8, Diamond Inc. issued common shares to its vice-president of marketing. At the date of issuing these shares, the company also provided the vice-president with a non-interest-bearing loan of $50,000 to purchase the shares. While reviewing the minutes of all the Diamond board of Directors meetings during the audit fieldwork, Diamonds auditor notes that in a meeting on February 12, 20X9, the Diamond board agreed to forgive this loan, effective on that day.