Question

a client has a calendar year-end. listed below are four events that occurred after december 31. which one of these subsequent events is most likely to result in adjustment of the december 31 financial statements? a. a major subsidiary was sold on february 7. b. a substantial portion of the company's inventory was written off as obsolete on january 31. c. the factory building was damaged by a fire on january 19. d. the client decided to change depreciation methods in the coming year.

Answer 1

An inventory write-off on January 31 would likely lead to an adjustment in the December 31 financial statements as it reflects conditions existing at the balance sheet date. Therefore correct option is B

Step-by-step explanation:

The event most likely to result in an adjustment of the December 31 financial statements is b. a substantial portion of the company's inventory was written off as obsolete on January 31. According to accounting principles, this would be considered a subsequent event that provides additional information about the conditions that existed at the balance sheet date and should be recognized in the financial statements as an adjustment.

The write-off of inventory reflects a condition that existed before the year-end and, therefore, should be included when finalizing the year-end financial statements. The other events listed relate to conditions that arose after the balance sheet date or are choices impacting future periods and typically do not necessitate adjustments to prior period financial statements.