Question

A client has a calendar year-end. Listed below are four events that occurred after

December 31. Which one of these subsequent events might result in adjustment of the
December 31 financial statements?
A) sale of a major subsidiary
B) adoption of accelerated depreciation methods
C) write-off of a substantial portion of inventory as obsolete
D) collection of 90% of the accounts receivable existing at December 31

Answer 1

The write-off of a substantial portion of inventory as obsolete is the event that might require an adjustment to the December 31 financial statements, as it provides additional evidence of conditions existing at the balance sheet date.

Step-by-step explanation:

The event that might result in an adjustment of the December 31 financial statements is the write-off of a substantial portion of inventory as obsolete. This is known as a subsequent event or post-balance-sheet event that provides additional information about conditions that existed at the balance sheet date. According to accounting principles, if an event occurs after the balance sheet date that provides additional evidence about conditions that existed at the balance sheet date (such as the obsolescence of inventory), it may require an adjustment to the financial statements.

Other events, such as the sale of a major subsidiary or adoption of a new depreciation method, relate to changes in the company's situation after the balance sheet date and do not typically result in adjustments to the financial statements unless they provide additional evidence about conditions at the date of the balance sheet.

The collection of accounts receivable existing at December 31 is also unlikely to require an adjustment, as it merely confirms the value of the asset that was already recorded at the balance sheet date.