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Sources of capital; financial statements

How would the following be disclosed on W&H Company's financial statements? The balance sheet was dated December 31, 2006, and the financial statements were issued February 14, 2007.

1. The IRS has claimed that W&H Company owes $450,000 of additional taxes for the first quarter of 2006; the claim was made in a suit filed on Jan 25, 2007. W&H Company's tax adviser estimates that the actual amount that will be paid will be between $270,000 and $318,000.

2. On January 15th, 2007, a fire destroyed one of W&H Company's warehouses. The warehouse had a net book value of $2,735,000 on the year end balace sheet.

3. During 2006, a lawsuit was filed against W&H company that claimed $750,000 in punitive damages and $400,000 in personal injury, which the plantif alleges occured when using one of W&H Company's products. The suit was not settled as of December 31, 2007, but the company's attorney is convinced insurance would pay 75% of any award.

4. Several dissident shareholders had informed the company that they intended to sue the W&H board of directors for $5,000,000 because the board had rejected a merger offer proposed by a major supplier. The company has indemnified the directors; thus, any judgment against the directors would be paid by the company. W&H Company's attorney felt any such suit would be without merit.

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1. The first one would be disclosed as a subsequent event.

Subsequent events are significant events related, directly or indirectly, to an entity that occur after the balance sheet date. There are two types of subsequent event, adjusting events and non-adjusting events. The type of event determines how it shall be reflected in the entity's financial statements.

Adjusting events provide additional information about conditions that existed at the balance sheet date. The information that such events provide shall be reflected through an adjustment of amounts in ...