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    Subsequent Events Treatment for Financial Audit of Flowmeter Inc

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    In connection with the audit of Flowmeter, Inc., for the year ended December 31, 20X0, Hirsch, CPA, is aware that certain events and transactions that took place after December 31, 20X0, but before Hirsch issues his report dated February 8, 20X1,
    may affect the company's financial statements.

    The following material events or transactions have come to his attention.

    1. On January 3, 20X1, Flowmeter, Inc., received a shipment of raw materials from Canada.
    The materials had been ordered in October 20X0 and shipped FOB shipping point in
    November 20X0.

    2. On January 15, 20X1, the company settled and paid a personal injury claim of a former
    employee as the result of an accident that occurred in March 20X0. The company had not
    previously recorded a liability for the claim.

    3. On January 25, 20X1, the company agreed to purchase for cash the outstanding stock of
    Porter Electrical Company. The acquisition is likely to double the sales volume of
    Flowmeter, Inc.

    4. On February 1, 20X1, a plant owned by Flowmeter, Inc., was damaged by a flood, resulting
    in an uninsured loss of inventory.

    5. On February 5, 20X1, Flowmeter, Inc., issued and sold to the general public $2 million in
    convertible bonds.


    For each of the above events or transactions, indicate the audit procedures that should have brought the item to the attention of the auditor and the form of disclosure in the financial statements including the reasons for such disclosure.

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    Solution Summary

    The solution discusses the subsequent events treatment for financial audit for Flowmeter Inc.