Subsequent Events and Contingent Liabilities. Crankwell Inc. is preparing its annualfinancial statements and annual report to stockholders. Management wants to be sure thatall of the necessary and proper disclosures have been incorporated into the financial statements and the annual report. Two classes of items that have an important bearing on thefinancial statements are subsequent events and contingent liabilities. The financial statements could be materially inaccurate or misleading if proper disclosure of these items isnot made.Required:a. With respect to subsequent events1. Define what is meant by a subsequent event.2. Identify two types of subsequent events and explain the appropriate financial statement presentation of each type.3. What are the procedures that should be performed to ascertain the existence of subsequent events?b. With respect to contingent liabilities1. Identify the essential elements of a contingent liability.2. Explain how a contingent liability should be disclosed in the financial statements.c. Explain how a subsequent event may relate to a contingent liability. Give an example tosupport your answer.
Subsequent Events and Contingent Liabilities. Crankwell Inc. is preparing its annual
financial statements and annual report to stockholders. Management wants to be sure that
all of the necessary and proper disclosures have been incorporated into the financial statements and the annual report. Two classes of items that have an important bearing on the
financial statements are subsequent events and contingent liabilities. The financial statements could be materially inaccurate or misleading if proper disclosure of these items is
not made.
Required:
a. With respect to subsequent events
1. Define what is meant by a subsequent event.
2. Identify two types of subsequent events and explain the appropriate financial statement presentation of each type.
3. What are the procedures that should be performed to ascertain the existence of subsequent events?
b. With respect to contingent liabilities
1. Identify the essential elements of a
2. Explain how a contingent liability should be disclosed in the financial statements.
c. Explain how a subsequent event may relate to a contingent liability. Give an example to
support your answer.
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