Question

The loss of an entity's manufacturing facility resulting from an earthquake that occurred after the balance sheet date but before the financial statements are issued is considered a Type ______ subsequent event.

Answer 1

The destruction of a manufacturing plant from an earthquake after the balance sheet date but before issuing financial statements is a Type I subsequent event, requiring adjustments to the financial statements.

Step-by-step explanation:

The loss of an entity's manufacturing facility resulting from an earthquake that occurred after the balance sheet date but before the financial statements are issued is considered a Type I subsequent event. A Type I event provides evidence of conditions that existed at the balance sheet date and may require adjustment to the financial statements. The event is directly related to conditions that existed before the balance sheet date, even though it occurred after that date.