Madrasah Corporation issued its financial statements for the year ended December 31, 2017, on March 10, 2018. The following events took place early in 2018.

1. On January 10, 10,000 shares of \(5 par value common stock were issued at \)66 per share.
2. On March 1, Madrasah determined after negotiations with the Internal Revenue Service that income taxes payable for 2017 should be \(1,270,000. On December 31, 2017, income taxes payable were recorded at \)1,100,000.

Instructions

Discuss how the preceding post-balance-sheet events should be reflected in the 2017 financial statements.

a) Issuance of common stock is an example of the latter event that virtually confirms circumstances that were not present at the balance sheet date but arose after that date. After that, no amendments are made to the financial statements. In any event, this capability should be disclosed in a letter, a supplemental plan, or a fully enabled financial data platform.

b) An altered assessment of income tax payable is an example of a later event that appears to be excessive with respect to the conditions as at the balance sheet date. On December 31, 2017, the income assessment liability existed, although the amount had not been established. This event has an impact on past values and should result in adjustments to the financial statements.