Brief Exercise 24-3 (Essay)
Morlan Corporation is preparing its December 31, 2014, financial statements. Two events that occurred between December 31, 2014, and March 10, 2015, when the statements were issued, are described below.
What effect do these subsequent events have on 2014 net income?
Solution
1. Liability which is estimated at $160,000 was settled for $170,000 : Difference amount of $10,000 will be Adjusted in Contingent Liabilities. (It is an Adjusting Event)
2. Flood Loss: Loss of $80,000 due to Flood will not affect Net Income of 2014. (It is an Non Adjusting Event)
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Brief Exercise 24-3 (Essay) Morlan Corporation is preparing its Decemb.docx
1. Brief Exercise 24-3 (Essay)
Morlan Corporation is preparing its December 31, 2014, financial statements. Two events that
occurred between December 31, 2014, and March 10, 2015, when the statements were issued,
are described below.
What effect do these subsequent events have on 2014 net income?
1.
A liability, estimated at $160,000 at December 31, 2014, was settled on February 26, 2015, at
$170,000.
2. A flood loss of $80,000 occurred on March 1, 2015.
Solution
1. Liability which is estimated at $160,000 was settled for $170,000 : Difference amount of
$10,000 will be Adjusted in Contingent Liabilities. (It is an Adjusting Event)
2. Flood Loss: Loss of $80,000 due to Flood will not affect Net Income of 2014. (It is an Non
Adjusting Event)
