CE on Events after the Reporting Period

CE on Events after the Reporting Period - CLASSROOM...

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CLASSROOM EXERCISES ON EVENTS AFTER THE REPORTING PERIOD For each of the following situations, determine whether the case requires and adjustment of the financial statements or disclosure. Situation 1 Boyce Co. gives warranties at the time of sale to its purchasers. On December 31, 2015 it assessed its warranty obligation to be P100,000. Immediately before the 2015 financial statements were authorized for issue, the entity discovered a latent defect in one of its lines of products (i.e. a defect that was not discoverable by reasonable or customary inspection). Situation 2 On March 1, 2016 Harmony Corp.’s financial statements for the year ended Dec. 31, 201 5 were authorized for issue. At December 31, 2015 the entity had a significant unhedged foreign currency exposure. By March 1, 2016 a significant loss had been incurred on these exposures because of a material weakening of the entity’s functional currency against the foreign currencies to which it is exposed. Situation 3a On March 1, 2016 Eads Co.’ s financial statements for the year ended December 31, 2015 were authorized for issue. On February 1, 2016 a competitor agreed to settle a claim by the entity for breach of one of its patents. Eads opened the case against the competitor in 2016. However, t he competitor had disputed the entity’s case.
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