Problem 9-10: Several independent items are listed for which the outcome of events is unknown at the year-end.Accompany offers a two-year warranty on sales of new computers. It believes that 4% of the computers will require repairs.A company is involved in a trademark infringement suit. The company’s legal experts believe that an award of $500,000 in the company’s favor will be made.A company is involved in an environmental cleanup lawsuit. The company’s legal counsel believes that the outcome may be unfavorable but has not been able to estimate the costs of the possible loss.A soup manufacturer has included a coupon offer in the Sunday newspaper supplements. The manufacturer estimates that 25% of the 50c coupons will be redeemed.A company has been sued by the federal government for price-fixing. The company’s legal counsel believes that there will be an unfavorable verdict and has made an estimate of the probable loss.Identify which of the items (a) through (e) should be recorded at year-end.Identify which of the items (a) through (e) should not be recorded but should be disclosed in the year-end financial statements.

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Answered: Problem 9-10: Several independent items…

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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Problem 9-10: Several independent items are listed for which the outcome of events is unknown at the year-end.

Accompany offers a two-year warranty on sales of new computers. It believes that 4% of the computers will require repairs.
A company is involved in a trademark infringement suit. The company’s legal experts believe that an award of $500,000 in the company’s favor will be made.
A company is involved in an environmental cleanup lawsuit. The company’s legal counsel believes that the outcome may be unfavorable but has not been able to estimate the costs of the possible loss.
A soup manufacturer has included a coupon offer in the Sunday newspaper supplements. The manufacturer estimates that 25% of the 50c coupons will be redeemed.
A company has been sued by the federal government for price-fixing. The company’s legal counsel believes that there will be an unfavorable verdict and has made an estimate of the probable loss.

Identify which of the items (a) through (e) should be recorded at year-end.
Identify which of the items (a) through (e) should not be recorded but should be disclosed in the year-end financial statements.

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