18At year end, a company has a pending lawsuit concerning damages for a defect in one of its products. A lawsuit will be settled at a future date. A company wants to determine if it needs to record this liability onits financial statements.Which two conditions must both be met to make this determination?The amount can reasonably be estimated and it is probable that company will lose the lawsuit.The likelihood of losing the lawsuit is remote and the amount can be estimated reasonably.The payees are known and the likelihood that they will lose the lawsuit is reasonably possible.The likelihood that the company will lose the case is probable and the date can be estimated reasonably.

Correct: A. The amount can reasonably be estimated and it is probable that company will lose the…

Answered: 18 At year end, a company has a pending…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter4: Balance Sheet: Presenting And Analyzing Resources And Financing

Section: Chapter Questions

Problem 9Q

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Darren Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and the court will decide the case within one year. the Darren Company admits guilt. the cause for action occurred during the accounting period covered by the financial statements. the damages appear to be material.
Wilhelm Company prepares its financial statements according to International Accounting Standards (IFRS). It recently estimated that it has a 55 percent chance of losing a lawsuit. Assuming Wilhelm can reliably estimate the amount it would pay if it loses the lawsuit, it should. a. Accrue a liability for the lawsuit. b. Disclose the matter in the notes to the financial statements but not accrue a liability for the lawsuit. c. Make no mention of the lawsuit in the financial statements or notes. d. None of the above.
In 2019, Zain Oil company was being sued for damages the seaside because its chemical material dropped to the sea. The settlement of which could threaten the financial stability of the company. The company decided to choose non-disclosure with the hope that its lawyer may win the case at court. - which types of suitable qualitative characteristics of useful financial information?
17 Due to an unknown product defect, a company must recall its product and reimburse its customers. It was determined this event is probable, and the amount can be reasonably estimated, but the company cannot determine the exact date these payments will be made. How should the company account for this obligation? Record the amount as an increase to an asset account and increase to a liability account. Only disclose the amount as the date of payment is not set. Do not record or disclose this obligation. Record the amount as an increase to an expense account and an increase to a liability account.
A company is required to report a liability on its balance sheet when it expects to lose a lawsuit and the amount of the expected loss can be reasonably estimated (FASB) Conversely, a company is prohibited from reporting a receivable in its balance sheet when it expected to win a lawsuit even though that is probable and the amount of the expected gain can be reasonably estimated. Required: 1. Give an example of one company that experienced an expected loss due to a lawsuit and one company that had an expected gain. Provide the exact disclosure in their financial statements for both gains and losses.
The following items represent various types of liabilities. Identify if the following independent situations should be (a) recorded in the financial statements, (b) disclosed in a footnote in the financial statements, or (c) neither. ______ 1. A manufacturing company is sued for alleged product liability. The company’s attorney does not feel that the suit will result in liability to the company, but a loss is possible. If adversely adjudicated, the liability would be material. ______ 2. Alpha has sold products to Sparkle Jewelers, a retailer that sold the products to customers. The manufacturer’s warranty offers replacement of the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 0.06% of the products are returned for replacement. ______ 3. A customer has filed a lawsuit for a minor amount against Sparkle Jewelers. Sparkle’s attorneys have reviewed the case and have found that many similar cases have never been awarded to the plaintiff.
Tweedy Inc. prepares its financial statements according to International Accounting Standards (IFRS). It recently estimated that it has a 99 percent chance of winning a lawsuit. Assuming Tweedy can reliably estimate the amount it would receive if it wins the lawsuit, it should. a. Accrue an asset for the lawsuit. b. Disclose the matter in the notes to the financial statements but not accrue an asset for the lawsuit. c. Make no mention of the lawsuit in the financial statements or notes. d. None of the above.
According to FASB, when should a company journalize a contingent liability? A. Do not journalize the contingent liability under any circumstances. B. Journalize the contingent liability, even though you will probably win the lawsuit. C. Journalize the contingent liability only if the amount can be estimated and the probability of loss is reasonably possible. D. Journalize the contingent liability if it is probable that the loss will occur, and the amount of the loss can be reasonably estimated. thanks for help appareciated it rajtir h
Peleton experienced a product recall on their treadmills. The company is currently in the middle of a lawsuit. It is probable that the company will lose the lawsuit due to injuries sustained from the treadmill use. The company cannot reasonably estimate the amount of their future obligation under the lawsuit. How should the company treat the lawsuit in their financial statements? Record as a liability on the balance sheet Stop selling more treadmills Disclose in the notes to the financial statements Ignore, not enough information is given
For each separate situation, indicate whether Cruz Company should (a) record a liability, (b) disclose in notes, or (c) have no disclosure.
6. Buwis Buhay Incorporated had several outstanding obligations on December 31, 2019. The brief descriptions listed below can be ascertained from these liabilities. r. In June 2019, Buwis Buhay was involved in a court case amounting to P10,000,000. The attorney assessed that it is probable that the company will win the case with P4,500,000 as the best estimate of the reward. • In August 2019, Baguio City brought an action against the company for polluting the surrounding rivers with its waste products costing P5,000,000. It is probable that Baguio City will be successful but the amount of damages Buwis Buhay might have to pay is not to exceed P2,500,000. • In December 2019, another litigation case amounting to P20,000,000 was filed against Buwis Buhay for injuring pedestrians due to its renovation projects within the premise. This court case is seen to have remote likelihood of occurrence because the evidences filed are not strong.
Machine Corp. has several pending lawsuits against its company. Review each situation and (1) determine the treatment for each situation as probable and estimable, probable and inestimable, reasonably possible, or remote; (2) determine what, if any, recognition or note disclosure is required; and (3) prepare any journal entries required to recognize a contingent liability. A. A pending lawsuit, claiming $100,000 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. B. Machine Corp. believes there might be other potential lawsuits about this faulty machinery, but this is unlikely to occur. C. A claimant sues Machine Corp. for damages, from a dishonored service contract agreement; the plaintiff will likely win the case but damages cannot be reasonably estimated. D. Machine Corp. believes a customer will win a lawsuit it filed, but the outcome is not likely and is not remote. It is possible the customer will win.

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