As a result of an allegedly defective equipment causing harm to an employee, an entity is facing a lawsuit requesting damages. The entity's legal counsel estimates that there is an approximately 60% possibility that the entity will lose the case and that it will have to pay an amount between $100,000 and $200,000 with no amount within such range being more likely than any other amount in the range. How much should the entity record as a contingent loss, if any? (Select the best answer.) a. O $0 b. $60,000 C. O $100,000 d. O $150,000

As a result of an allegedly defective equipment causing harm to an employee, an entity is facing a lawsuit requesting damages. The entity's legal counsel estimates that there is an approximately 60% possibility that the entity will lose the case and that it will have to pay an amount between $100,000 and $200,000 with no amount within such range being more likely than any other amount in the range. How much should the entity record as a contingent loss, if any? (Select the best answer.) a. O $0 b. $60,000 C. O $100,000 d. O $150,000

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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1. Northstar Resources is now involved in a class action suit brought about by the farmers. They are suing for $100 million in compensation for their land, which is now unusable because of the oil spill. The company’s lawyers deem they can settle for 15% of that amount. 2. In an unrelated matter in July 2021 a competitor commenced a suit against Northstar Resources alleging violation of antitrust laws and seeking damages of $2.5 million. Northstar Resources denies the allegations, and the likelihood that Northstar Resources will have to pay any damages is remote. Discuss the financial reporting issues (recognize or do not recognize) and provide recommendation(s) on how to handle each situation. As you write, keep your audience in mind.
Vinson Co is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Vinson's lawyer states that it is probable that Vinson will lose the suit and be found liable for a judgment costing Vinson anywhere from $600,000 to $3,000,000. However, the lawyer states the most probable cost is $1,800,000. As a result of these facts, Vinson should accrue: O a loss contingency of $600,000 and disclose an additional contingency of up to $2,400,000 O a loss contingency of $1.800,000 and disclose an additional contingency of up to $1,200,000 O a loss contingency of $1.800.000 but NOT disclose any additional contingency. O no loss contingency but disclose a contingency of $600,000 to $3.000.000
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 $114 million plus interest, a total of $129 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 $147 million will be required to cover the cost of violations. Eastern believes that…
Superb Corporation is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Superb's lawyer states that it is probable that Superb will lose the suit and be found liable for a judgment costing Superb anywhere from $1,200,000 to $6,000,000. However, the lawyer states that the most probable cost is $3,600,000. As a result of the above facts, Superb should accrue Select one: а. no loss contingency but disclose a contingency of $1,200,000 to $6,000,000. O b. a loss contingency of $1,200,000 and disclose an additional contingency of up to $4,800,000. Ос. a loss contingency of $3,600,000 but not disclose any additional contingency. O d. a loss contingency of $3,600,000 and disclose an additional contingency of up to $2,400,000.
18. During 2011, Odyssey Company is the defendant in a patent infringement lawsuit. The entity's lawyers believe there is a 30% chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believe that there is a 20% chance that the entity will be required to pay damages of P200,000 and an 80% chance that the entity will be required to pay damages of P100,000. Other outcomes are unlikely. The court is expected to rule in late December 2012. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability- weighted expected cashflows is considered appropriate to reflect the uncertainties in the cashflow estimates. An appropriate discount rate is 5% per year. The present value of 1 at 5% for one period is 0.95. What is the measurement of the provision for lawsuit? * a. 100,000 b. 84,000 c. 89,880 O d. 85,386
ProWasher is the defendant in a patent infringement lawsuit filed by Sue Case over ProWasher’s use of a hydraulic compressor in several of its products. Anna Turney claims that, if the suit goes against ProWasher, the loss may be as much as $5 million. It is more likely than not that ProWasher will have to pay some amount on the settlement. Although the exact amount is not known, the lawyer has been able to assign probabilities and expected payment amounts as follows (based on Statistics - probability distributions): 20% probability that the settlement will be $5 million, 35% probability that the settlement required will be $3 million, and 45% that no settlement will be required. How much is the patent liability?
A buyer working with QRS Realty wants to make an offer on a property. To save time, the buyer makes a verbal offer of $210,000 and the seller agrees. The offer is: -invalid because it does not include a closing date-unenforceable because it is not in writing-voidable because the licensee did not review the offer-unilateral because the contract is not exclusive
In 2021, a lawsuit was filed against Keri Keri Co. for patent infringement. The plaintiff is claiming ₱400M in damages. Keri Keri’s legal counsel believes that it is probable that Keri Keri will lose the lawsuit and pay damages of not less than ₱40M but not more than ₱400M. The probability of any amount within the range is as likely as any other amount also within the range. The plaintiff has offered to settle the lawsuit out of court for ₱360M but Keri Keri did not agree to the settlement.How much is provision to be reported in Keri Keri’s year-end financial statements? a. P360,000,000 b. P220,000,000 c. P400,000,000 d. P40,000,000
Swifty Corporation is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Swifty's lawyer states that it is probable that Swifty will lose the suit and be found liable for a judgment costing Swifty anywhere from $ 1830000 to $ 8960000. However, the lawyer states that the most probable cost is $ 5410000. As a result of the above facts, Swifty should accrue a loss contingency of $ 1830000 and disclose an additional contingency of up to $ 7130000. a loss contingency of $ 5410000 and disclose an additional contingency of up to $ 3550000. no loss contingency but disclose a contingency of $ 1830000 to $ 8960000. a loss contingency of $ 5410000 but not disclose any additional contingency.
C has initiated a lawsuit against Agency A for recovery of damages when accidentally one of the vehicles owned by the agency collided with the car then driven by C. The Chief Legal Counsel of the Agency estimates from experience that at December 2015, the entity has a 60% chance of winning the lawsuit and thereby avoiding the payment of damages. Furthermore, the counsel estimates that the agency has 20% chance of being ordered to pay C damages of P100,000 and a 20% chance of being ordered to pay C damages of P10,00 Use the facts given in No. 1, but this time assumes that on December 31, 2015, the Chief Legal Counsel of Agency A estimates from past experience that the possibility of losing the case filed by C is remote. -State whether a contingent liability or contingent asset exists.-Explain your answers by stating the criteria of your answers below.
PC Inc., a competitor of Champion Incorporated, filed a lawsuit against Champion for $430,000. Champion's lawyers reviewed the lawsuit and believe that, although PC has a valid case, the suit can be settled out of court for $210,000. Required 1. Assuming Champion Incorporated follows ASPE, indicate (yes or no) whether the company should recognize a contingent liability in its financial statements. ks) 2. Indicate why a contingent liability should or should not be recognized. (0