Pitt Company is the defendant in a lawsuit filed by Hoffman in Year 1 disputing the validity of a copyright held by Pitt. At December 31 of Year 1, Pitt determined that Hoffman would probably be successful against Pitt for an estimated amount of $1,280,000. Appropriately, an $1,280,000 loss was accrued by a charge to income of Pitt for the year ended December 31 of Year 1. On December 15 of Year 2, Pitt and Hoffman agreed to a settlement providing for cash payment of $800,000 by Pitt to Hoffman and transfer of Pitt's copyright to Hoffman. The carrying amount of the copyright on Pitt's accounting records was $192,000 at December 15 of Year 2 a. What would be the effect of the settlement of this ability on Pitt's pretax income before income tax in Year 27 b. Record the entry on December 15 of Year 2 for Pitt Company. Income Statement Classification a Estimated Litigation Liability Amount 1.280,000 Account Name b. Dec 15, Year 2 Estimated Litigation Liability Cash Loss on Litigation Settlement Accounts Receivable to record settlement lawat Dr. 1,280.000 800,000

Pitt Company is the defendant in a lawsuit filed by Hoffman in Year 1 disputing the validity of a copyright held by Pitt. At December 31 of Year 1, Pitt determined that Hoffman would probably be successful against Pitt for an estimated amount of $1,280,000. Appropriately, an $1,280,000 loss was accrued by a charge to income of Pitt for the year ended December 31 of Year 1. On December 15 of Year 2, Pitt and Hoffman agreed to a settlement providing for cash payment of $800,000 by Pitt to Hoffman and transfer of Pitt's copyright to Hoffman. The carrying amount of the copyright on Pitt's accounting records was $192,000 at December 15 of Year 2 a. What would be the effect of the settlement of this ability on Pitt's pretax income before income tax in Year 27 b. Record the entry on December 15 of Year 2 for Pitt Company. Income Statement Classification a Estimated Litigation Liability Amount 1.280,000 Account Name b. Dec 15, Year 2 Estimated Litigation Liability Cash Loss on Litigation Settlement Accounts Receivable to record settlement lawat Dr. 1,280.000 800,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: On December 13, 2019, ABC Company was in an accident with an automobile driven by DEF. ABC received…

A: Contingent liability: Contingent liability means a liability that may occur depending on the outcome…

Q: Tone Company is the defendant in a lawsuit filed by Witt in 2019 disputing the validity of copyright…

A: Given data, Estimated amount=P400,000 loss accrued by a charge to income=P400,000 Cash payment…

Q: 1. During 2021, Thor Company was sued by a competitor for P5,000,000 for infringement of a…

A: Comment- We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: Oriole Company discovered an error in its accounting records in 2025. Oriole had purchased a…

A: Journal entry:The monetary transaction of business is recorded in the books of accounts called the…

Q: Discuss the implication of the transactions and state the journal entries on January 1, 2020

Q: Un November 5, 2019, a Dunn Company truck was in an accident with an auto driven by Bell. Dunn…

A: Potential liability: It is a liability that can be accrued shortly. The company should prepare…

Q: Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a…

A: Intangible assets: Intangible assets are characterized by not having physical existence. Example…

Q: Blue Company, an accrual basis taxpayer, provides business-consulting services. Clients generally…

A: Gross income for taxation purposes means that income on which taxes are needed to be paid by the…

Q: Huprey Company is the defendant in the following legal claims. For each of the following separate…

A: The conservatism principle of accounting states that the losses are anticipated and should be…

Q: In year 0, Javens Incorporated sold machinery with a fair market value of $640,000 to Chris. The…

A: Recognized gain refers to, when an investment or asset is sold for an amount greater than the amount…

Q: On July 1 of year 1, Riverside Corporation (RC), a calendar-year taxpayer, acquired the assets of…

A: Book–Tax Difference: Accounting profit, also known as commercial profit, and fiscal profit,…

Q: Raider reports nothing: Palmer reports nothing. Raider reports nothing: Palmer reports a gain.…

A: This is a case of accounting for contingencies. Contingent liabilities and gains depend on the…

Q: On January 30, 2016, a suit was filed against Frazier Corporationunder the Environmental Protection…

Q: In March year 2, an explosion occurred at Nilo Co.'s plant, causing damage to area properties. By…

A: Given Information: Reasonable estimate of the damages - $3,000,000 Comprehensive public…

Q: Cooper Construction Company sells a used crane to Alpha Construction for $94,000. The crane, which…

A: Let's go through the requirements step by step:### Requirement a. Compute the gain from the sale.The…

Q: Pitt Company is the defendant in a lawsuit filed by Hoffman in 2020 disputing the validity of a…

A: In simple terms contingent liability indicates a potential liability. It may or may not get…

Q: Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith’s legal…

A: Contingent gains arises from an uncertain situation that will be probably occurred in future…

Q: Novato Inc. went to court this year and successfully defended its patent from infringement by a…

A: The cost of protecting the patent must be added to the cost of the patent because protecting the…

Q: Wilson Corporation is performing the test of impairment of its Technology reporting unit at the end…

A: Impairment in the business is the situation under which carrying value of the asset is less than…

Q: Sweet Company recently was sued by a competitor for patent infringement. Attorneys have determined…

A: As per the Perdunce Concept Sweet company has to create a Liability for Future Damages and Since…

Q: Reeves Company filed suit against Higgins, Incorporated, seeking damages for copyright violations.…

A: Liability -A liability refers to a corporation's duty that causes the company to forfeit future…

Q: Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins'…

A: Contingent Liability: A contingent liability is an obligation that may arise as a result of the…

Q: Oriole Professionals, a management consulting firm, specializes in strategic planning for financial…

A: Planning is the basic function of management. Planning is the process of deciding in advance what is…

Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

Pitt Company is the defendant in a lawsuit filed by Hoffman in Year 1 disputing the validity of a copyright held by Pitt. At December 31 of Year 1, Pitt determined that Hoffman would probably be successful
against Pitt for an estimated amount of $1,280,000. Appropriately, an $1,280,000 loss was accrued by a charge to income of Pitt for the year ended December 31 of Year 1. On December 15 of Year 2, Pitt and
Hoffman agreed to a settlement providing for cash payment of $800,000 by Pitt to Hoffman and transfer of Pitt's copyright to Hoffman. The carrying amount of the copyright on Pitt's accounting records was
$192,000 at December 15 of Year 2
a. What would be the effect of the settlement of this liability on Pitt's pretax income before income tax in Year 27
b. Record the entry on December 15 of Year 2 for Pitt Company.
Income Statement Classification
Amount
a Estimated Litigation Liability 1,280,000
Account Name
b. Dec 15, Year 2 Estimated Litigation Liability
Cash
Loss on Litigation Settlement
Accounts Receivable
To.record settlement lawat
Dr.
1,280.000
0
Cr.
0
800,000
0

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Concept introduction

VIEW

Step 2: Determination of effect of settlement of this liability on Pitt's pretax income before income tax

VIEW

Step 3: Determination of entry on December 15, year 2 for Pitt

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Accounting for Current liabilities, Provisions and Contingencies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

While providing services to Palmer Co., Raider Group caused damages of $125,000. As of the end of the year, both parties agree that it is probable that Raider will pay Palmer the full amount of the damages within the next two months. How would Raider and Palmer report the lawsuit at the end of the year? Raider reports nothing: Palmer reports nothing. Raider reports nothing: Palmer reports a gain. Raider reports a loss; Palmer reports a gain. Raider reports a loss: Palmer reports nothing. There is not enough information to answer the questions.
Malky is manager of York Steel Ltd. His contract is for 10 years. In the third year Malky enters into a restrictive covenant which provides that during the remainder of his contract he must not reveal or use confidential information other than to his employer. It further provides that he must not work for a competitor during the remainder of the employment agreement. Consideration for entering into the agreement is $40,000. Is this capital or income in Malky’s hands?
Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2022. The lawsuit was filed on November 1, 2022, and claims damages of $1,000,000. At December 31, 2022, Gallardo’s attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit? Assume instead that at December 31, 2022, Gallardo’s attorneys feel it is probable that Gallardo will lose the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit? Assume instead that at December 31, 2022, Gallardo’s attorneys feel it is reasonably possible that Gallardo could lose the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit? Prepare the current liabilities section of the balance sheet.
On July 1 of year 1, Riverside Corporation (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had purchased $1,800,000 of goodwill for both book and tax purposes. At the end of year 1, RC determined that the goodwill had not been impaired during the year. In year 2, however, RC concluded that $390,000 of the goodwill had been impaired and wrote down the goodwill by $390,000 for book purposes. Required 1. What book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or unfavorable? Is it permanent or temporary? Book-tax difference Is it favorable or unfavorable? Is it permanent or temporary? Show Transcribed Text 2. What book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary? Book-tax difference Is it favorable or unfavorable? Is it permanent or…
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.
ABC Inc. has is being sued by a customer. The plaintiff (customer) claims $50,000 for product deficiencies. The controller discussed the claim with legal counsel and the lawyer notes that the company is likely to lose the suit with an estimated payout of $50,000. The controller has identified this as a contingent loss (liability) and has accrued it in the financial statements and prepared the note disclosure. The financial statement note disclosure states the following: "During the year, ABC Inc. received a claim for an alleged product deficiency. ABC Inc. is defending the action however legal advice at this time indicated that is likely the claim could result in a loss for ABC İnc." ABC Inc. reports under ASPE. Required: a) Provide the path to the appropriate reference in the Handbook assuming the entity follows ASPE. b) Indicate what is missing from the note disclosure, if anything, for ABC Inc.
zeke Ltd. (Zeke) contributed a patent to VE Company (VE) on January 1, 2023. VE is a business and is deemed to be a special-purpose entity (SPE). The fair value of VE's net identifiable assets (not including the patent) are $75,000. Zeke is the primary beneficiary. The patent has a carrying value of $10,000 on Zeke's separate-entity balance sheet and a fair value of $40,000. The fair value of the noncontrolling interest on January 1, 2023 is $30,000. What is the total value of the consideration given to VE? Multiple Choice $40,000 $105,000 $75,000 $70,000
Sklar, CPA, purchased from Wiz Corp. two computers. Sklar discovered material defects in the computers 10 months after takin delivery. Three years after discovering the defects, Sklar commenced an action for breach of warranty against Wiz. Wiz has rais statute of limitations as a defense. The original contract between Wiz and Sklar contained a conspicuous clause providing that statute of limitations for breach of warranty actions would be limited to 18 months. Under the circumstances, Sklar will Select one: a. Win because the action was commenced within the four-year period as measured from the date of delivery. b. Win because the action was commenced within the four-year period as measured from the time he discovered the brea should have discovered the breach. c. Lose because the clause providing that the statute of limitations would be limited to 18 months is enforceable. d. Lose because the statute of limitations is three years from the date of delivery with respect to written…
Watson agreed to buy Ingram’s house for $355,000. The contract provided that Watson deposit $15,000 as earnest money and that “in the event of default by the Buyer, earnest money shall be forfeited to Seller as liquidated damages, unless Seller elects to seek actual damages or specific performance.” Because Watson did not timely comply with all of the terms of the contract, nine months after the Watson sale was to occur, Ingram sold the house to a third party for $355,000. Is Ingram entitled to Watson’s $15,000 earnest money as liquidated damages? Explain.
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
1. Medrano is the defendant in a lawsuit filed by Witt in 2018 disputing the validity of copyright held by Tone. December 31, 2018, Tone determined that Witt would probably be successful for an estimated amount of $400, 000. Appropriately, a $400, 000 loss was accrued by a charge to income for the year ended December 31, 2018. On December 31, 2019, Tone and Witt agreed to a settlement providing for a cash payment of $250, 000 by Tone to Witt, and transfer of Tone’s copyright to Witt. The carrying amount of the copyright on tone’s accounting records was $60, 000 on December 31, 2019. What would be the effect of the settlement on Tone’s income before tax in 2019? 2. On December 31, 20x2, Apostol determines an indication that the impairment loss recognized in the prior period may no longer exist. The revised recoverable amount of the building on December 31, 20x2 is $1,280,000. If no impairment loss had been recognized in the prior period, the carrying amount of the building on December…
On January 1, 2022, Don Buchanan purchases a business that he will carry on as a sole proprietor. The purchase price includes $60,000 for goodwill. The business has a fiscal period that ends on December 31 and, for 2022, Don claims the maximum CCA. On January 1, 2023, the business is sold in an arm's length transaction with $82,000 paid for the goodwill. The affect of the sale of the goodwill is to increase net income for 2022 by: a. $14,000. b. $13,500. c. $15,500. d. $11,000.