Pitchfork Company is being sued by a competitor in a lawsuit alleging patent infringement. Pitchfork's lawyers state that it is possible Pitchfork will lose the suit and be found liable for a judgment costing anywhere from $1,800,000 to $9,000,000. However, the lawyers state that no one estimate is more likely. As a result of the above information, Pitchforks should report: O a contingent liability in the amount of $5,400,000, representing the average amount within the range of damages, on its Balance Sheet and disclose an additional contingency of up to $3,600,000 in the notes to the Balance Sheet. a contingent liability in the amount of $1,800,000 on its Balance Sheet and disclose an additional contingency of up to $7,200,000 in the notes to the Balance Sheet. a contingent liability in the amount of $5,400,000 on its Balance Sheet, but not disclose any additional contingency. a possible contingency of between $1,800,000 and $9,000,000 only in the notes of the 10K.

Pitchfork Company is being sued by a competitor in a lawsuit alleging patent infringement. Pitchfork's lawyers state that it is possible Pitchfork will lose the suit and be found liable for a judgment costing anywhere from $1,800,000 to $9,000,000. However, the lawyers state that no one estimate is more likely. As a result of the above information, Pitchforks should report: O a contingent liability in the amount of $5,400,000, representing the average amount within the range of damages, on its Balance Sheet and disclose an additional contingency of up to $3,600,000 in the notes to the Balance Sheet. a contingent liability in the amount of $1,800,000 on its Balance Sheet and disclose an additional contingency of up to $7,200,000 in the notes to the Balance Sheet. a contingent liability in the amount of $5,400,000 on its Balance Sheet, but not disclose any additional contingency. a possible contingency of between $1,800,000 and $9,000,000 only in the notes of the 10K.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Machine Corp. has several pending lawsuits against its company. Review each situation: A. A pending lawsuit, claiming $120,000 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. 1 and 2. Which of the above situations require recognition in the financial statements and which require note disclosure only? a. A must be recognized and requires note disclosure; C and D require note disclosure only. b. All four cases require note disclosure only. c. A, C, and D must be recognized; B requires note…
15. GINGERBREAD Company is involved in a litigation regarding a faulty product sold in a prior year. The entity has consulted with lawyer and determined that there is a 50% chance of losing. The lawyer estimated that the amount of any payment would be between P500,000 to P800,000 with P500,000 as the best estimate. What is the required journal entry as a result of this litigation? *
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.
Mississippi Cruise Lines is a defendant in litigation involving a swimming accident on one of its three cruise ships. Required: 1. The likelihood of a payment occurring is probable, and the estimated amount is $1.24 million. 2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $1.04 to $1.24 million. 3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $1.24 million. 4. The likelihood of a payment occurring is remote, while the estimated potential amount is $1.24 million. Record the necessary entry for the scenarios given above. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions. For example, $5.5 million should be entered as 5,500,000.)
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
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?
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.
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
15. GINGERBREAD Company is involved in a litigation regarding a faulty product sold in a prior year. The entity has consulted with lawyer and determined that there is a 50% chance of losing. The lawyer estimated that the amount of any payment would be between ₱500,000 to ₱800,000 with ₱500,000 as the best estimate. What is the required journal entry as a result of this litigation?