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Which of the following subsequent events is most likely to result in an adjustment to a company's financial statements?

A) merger or acquisition activities
B) bankruptcy (due to deteriorating financial condition) of a customer with an outstanding accounts receivable balance
C) issuance of common stock
D) an uninsured loss of inventories due to a fire

1 Answer

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Final answer:

The most likely event to cause an adjustment to a company's financial statements is the bankruptcy of a customer with an outstanding receivable. A rise in the supply of loans increases the quantity of loans made and received, and a rise in the supply of money can lead to lower interest rates. Therefore, the correct option is B.

Step-by-step explanation:

The student's question pertains to subsequent events that would require an adjustment to a company's financial statements. Among the options presented, bankruptcy (due to deteriorating financial condition) of a customer with an outstanding accounts receivable balance is the event that would most likely necessitate an adjustment. According to accounting principles, when it becomes evident that a receivable will not be collected because the customer has gone bankrupt, the company needs to adjust its financial statements to reflect the uncollectible amount as a loss. This is known as writing off the bad debt and is done to accurately represent the financial position of the company.

In response to the financial market queries, a rise in the supply of loans typically leads to an increase in the quantity of loans made and received, as more funds are available for borrowers. Conversely, a rise in the supply of money, in general, can lead to a decline in interest rates, as there is more money available to lenders, which increases competition and drives down the cost of borrowing.

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