Question

Which of the following is most likely to be considered a Type 1 subsequent event?

1) A business combination completed after year-end, but for which negotiations began prior to year-end.
2) A strike subsequent to year-end due to employee complaints about working conditions which originated two years ago.
3) Customer checks deposited prior to year-end, but determined to be uncollectible after year-end.
4) Introduction of a new line of products after year-end for which major research had been completed prior to year-end.

Answer 1

A Type 1 subsequent event refers to an event that occurs after the end of the reporting period but before the financial statements are issued.

Step-by-step explanation:

A Type 1 subsequent event refers to an event that occurs after the end of the reporting period but before the financial statements are issued. It provides additional information about conditions that existed on or before the reporting date and has a material impact on the financial statements. Based on the options provided, the introduction of a new line of products after year-end, for which major research had been completed prior to year-end, is most likely to be considered a Type 1 subsequent event. This is because the research was already concluded before year-end, indicating that the conditions existed on or before the reporting date.