Subsequent Events

Question 1

E.g. Welnet was sued in Oct of Year 8 for breach of contract. It recognized a $2 million estimated lawsuit loss and liability at Dec 31, Yr 8. The lawsuit was settled in Feb, Year 9 in the amount of $2.2 million before year 8 financial statements were available to be issued.

Answer 1

Welnet recognizes the entire $2.2 million loss in its year 8 statements as the breach of contract occurred before the tear 8 balance sheet date. The 0.2 million adjustment is simple part of the entire amount that is known before issuance of the year 8 statements. Since it took place before the issuance of year 8 statements.