ABC Co. filed suit against EFG Ltd. in2016 seeking damages for patentinfringement. AtDecember 31, 2016, legal counsel for ABC believed that it wasprobable that ABC would besuccessfulagainst EFG for an estimated amount inthe range of $30 million to $80 million.witheach amount in that rangeconsidered equally likely. Legal counsel forEFG also advised that itwas probable thatEFG would be liable for an amount in thesame range. ABC was awarded $50million in April 2017. EFG should reportthis liability in its 2016 financialstatements,authorized for issue in March, 2017 as (write down the journal entryin the format such as "Dr.Expense $10million, Cr. Payable $10 million").

EFG Ltd.'s Journal Entry for Contingent Liability in 2016Based on the information provided, EFG Ltd.…

Answered: ABC Co. filed suit against EFG Ltd.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation? Multiple Choice As a liability for $100,000 with disclosure of the range. As a liability for $150,000 with disclosure of the range. As a liability for $200,000 with disclosure of the range. As a disclosure only. No liability is reported.
In 2022, Mao Li Corporation determined that a production machine used in its operations was impaired and an impairment loss of HK$110,000 was recognized. In 2023, the fair value of the asset increased by HK$170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce. How would the gain due to increase in fair value be recognized in 2023 under IFRS? Group of answer choices IFRS allows the recognition of this impairment reversal as either income from continuing operations or as other comprehensive income, depending upon management's intent. IFRS permits the recognition of this impairment reversal as income from continuing operations. IFRS does not permit recognition of gains on reversal of previous impairment loss write-downs. IFRS permits the recognition of this impairment reversal as other comprehensive income.
Aviation Systems is involved in a $10 million lawsuit filed against one of its suppliers, Electronic Innovators. The litigation is in final appeal, and legal counsel advises that it is probable that Aviation Systems will win the lawsuit and be awarded somewhere between $6 and $10 million. Which of the following statement is true? Multiple Choice A gain and an asset must be recorded for $10 million. A gain must be recorded for $10 million and an asset must be recorded for $6 million. A gain and an asset must be recorded for $6 million. A gain must be recorded for $6 million and an asset must be recorded for $10 million. Gain contingencies are not recorded.
The Commonwealth of Virginia filed suit in October 2022 against Northern Timber Corporation, seeking civil penalties and injunctive relief for violations of environmental laws regulating forest conservation. When the financial statements were issued in 2023, Northern had not reached a settlement with state authorities, but legal counsel advised Northern Timber that it was probable the ultimate settlement would be $1,100,000 in penalties. The following entry was recorded: General Journal Debit Credit Loss-litigation 1, 100, 000 Liability-litigation 1, 100, 000 Late in 2024, a settlement was reached with state authorities to pay a total of $680,000 to cover the cost of violations. Required: Prepare any journal entry(s) related to the change. Is Northern required to revise prior years' financial statements as a result of the change? Is Northern required to provide a disclosure note to report the change?
Eastern Manufacturing is involved with several situations that possible involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2021 financial statements are issued on March 15, 2022. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2022, judgment was rendered against Eastern in the amount of $124 million plus interest, a total of $139 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. In November 2020, the State of Nevada filed suit against Easter, seeking civil penalties and injunctive relief for violations of upon discussions with legal counsel, the Company feels it is probable that $157 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company. Eastern is the plaintiff in a $217…
Skill Hardware is the plaintiff in a $16 million lawsuit filed against a supplier. The litigation is in final appeal and legal counsel advises that it is virtually certain that Skill will win the lawsuit and be awarded $12 million. How should Skill account for this event?
acc
Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $170,000 to $270,000, with all amounts in the range considered equally likely. How should Higgins report this litigation? Multiple Choice As a liability for $170,000 with disclosure of the range. As a disclosure only. No liability is reported. As a liability for $270,000 with disclosure of the range. As a liability for $220,000 with disclosure of the range.
Sapporo K.K. was sued by a competitor in late 2017, and company management concluded that there was a 55 percent probability that the company would lose the lawsuit. The best estimate of the loss on December 31, 2017, was 4,000,000 yen. In 2018, the lawsuit is concluded with Sapporo paying its competitor 5,000,000 yen on May 15, 2018. Assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes. Required: Prepare journal entries for this lawsuit for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert IFRS balances to U.S. GAAP.
9. During 2021, Rockon Company, Inc. incurred $240,000 in legal fees in defending a patent against an infringement with a carrying value of $2,500,000. Rockon’s lawyers were successful with the defense of the patent. The legal fees should be a. expensed in 2021 and classified as ordinary expenseb. classified as an extraordinary item on the income statement for 2021c. capitalized and amortized over the remaining legal life of the patentd. capitalized and amortized over the remaining economic life or legal life of the patent,whichever is shorter
Harrington Company was sued by an employee in late 2020. General counsel concluded that there was an 80 percent probability that the company would lose the lawsuit. The range of possible loss is estimated to be $20,000 to $70,000, with no amount in the range more likely than any other. The lawsuit was settled in 2021, with Harrington making a payment of $60,000. Assume that Harrington Company is a U.S.-based company that is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes. Required: a. Prepare journal entries for this lawsuit for the years ending December 31, 2020, and December 31, 2021, under (1) U.S. GAAP and (2) IFRS. b. Prepare the entry(ies) that Harrington would make on the December 31, 2020, and December 31, 2021, conversion worksheets to convert U.S. GAAP balances to IFRS. Complete this question by entering your answers in the tabs…
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern's fiscal year ends December 31, and the 2024 financial statements are issued on March 15, 2025, a. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2025, judgment was rendered against Eastern in the amount of $118 million plus interest, a total of $133 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. b. In November 2023, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2025, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $151 million will be required to cover the cost of violations. Eastern believes that…

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