SOLVED

24) The fieldwork for the December 31, 2011 audit of Schmidt Corporation ended on March 17, 2012. The financial statements and auditor’s report were issued and mailed to stockholders on March 29, 2012. In each of the material situations (1 through 5) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows: a.Adjust the December 31, 2011 financial statements. b.Disclose the information in a footnote in the December 31, 2011 financial statements. c.Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve an adjustment to the December 31, 2011 financial statements. d.Request the client revise and reissue the December 31, 2011 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2011 financial statements. e.No action is required. The situations are as follows: ________ 1. On April 5, 2012, you discovered that, on February 16, 2012 a flood destroyed the entire uninsured inventory in one of Schmidt’s warehouses. ________ 2. On February 17, 2012, you discovered that, on February 16, 2012, a flood destroyed the entire uninsured inventory in one of Schmidt’s warehouses. ________ 3. On February 17, 2012, you discovered that, on November 30, 2011, a flood destroyed the entire uninsured inventory in one of Schmidt’s warehouses. ________ 4. On April 5, 2012, you discovered that, on March 30, 2012, a fire destroyed one of Schmidt’s 13 plants. ________ 5. On April 7, 2012, you discovered that a debtor of Schmidt went bankrupt on January 6, 2012, due to gradual declining financial health. 25) The fieldwork for the December 31, 2007 audit of Treble Corporation ended on March 17, 2008. The financial statements and auditor’s report were issued and mailed to stockholders on March 29, 2008. In each of the material situations (1 through 5) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows: a.Adjust the December 31, 2007 financial statements. b.Disclose the information in a footnote in the December 31, 2007 financial statements. c.Request the client revise and reissue the December 31, 2007 financial statements. The revision should involve an adjustment to the December 31, 2007 financial statements. d.Request the client revise and reissue the December 31, 2007 financial statements. The revision should involve the addition of a footnote, but no adjustment, to the December 31, 2007 financial statements. e.No action is required. The situations are as follows: ________ 1. On January 16, 2008, a lawsuit was filed against Treble for a patent infringement action that allegedly took place in early 2005. In the opinion of Treble’s attorneys, there is a reasonable (but not probable) danger of a significant loss to Treble. ________ 2. On February 19, 2008, Treble settled a lawsuit out of court that had originated in 2002 and is currently listed as a contingent liability. ________ 3. On March 30, 2008, Treble settled a lawsuit out of court that had originated in 2004 and is currently listed as a contingent liability. ________ 4. On February 2, 2008, you discovered an uninsured lawsuit against Treble that had originated on August 30, 2007. ________ 5. On April 7, 2008, you discovered that a debtor of Treble went bankrupt on January 22, 2008, due to a major uninsured fire that occurred on January 2, 2008. 26) The issuance of bonds by the client subsequent to year-end would require a footnote disclosure in, but no adjustment to, the financial statements under audit. A) True B) False 27) Subsequent events which require adjustment to the financial statements provide additional information about significant conditions/events which did not exist at the balance sheet date. A) True B) False 28) Subsequent events for which disclosure, but no adjustment, is required provide information about significant events/conditions which existed at the balance sheet date. A) True B) False