The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus's fiscal year ends on December 31. Financialstatements are issued in March 2022. Erismus prepares its financial statements according to U.S. GAAP.Required:Indicate the amount Erismus would record as an asset, a liability or if no accrual would be necessary in the following circumstances.1. Erismus is defending against a lawsuit. Erismus's management believes the company has a slightly worse than 50/50 chance ofeventually prevailing in court, and that if it loses, the judgment will be $1,620,000.2. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses,management believes that damages could fall anywhere in the range of $2,530,000 to $5,060,000, with any damage in that rangeequally likely.3. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses,management believes that damages will eventually be $5,250,000, with a present value of $3,675,000.4. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is probable that the company eventually will prevail in court, andthat if it prevails, the judgment will be $1,620,000.5. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is virtually certain that the company eventually will prevail incourt, and that if it prevails, the judgment will be $618,000.1.2.3.4.5.ClassificationAmount

Answered: The following selected circumstances…

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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The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus's fiscal year ends on December 31. Financial
statements are issued in March 2022. Erismus prepares its financial statements according to U.S. GAAP.
Required:
Indicate the amount Erismus would record as an asset, a liability or if no accrual would be necessary in the following circumstances.
1. Erismus is defending against a lawsuit. Erismus's management believes the company has a slightly worse than 50/50 chance of
eventually prevailing in court, and that if it loses, the judgment will be $1,620,000.
2. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses,
management believes that damages could fall anywhere in the range of $2,530,000 to $5,060,000, with any damage in that range
equally likely.
3. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses,
management believes that damages will eventually be $5,250,000, with a present value of $3,675,000.
4. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is probable that the company eventually will prevail in court, and
that if it prevails, the judgment will be $1,620,000.
5. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is virtually certain that the company eventually will prevail in
court, and that if it prevails, the judgment will be $618,000.
1.
2.
3.
4.
5.
Classification
Amount

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Contingent liabilities are those that are not incurred yet, however, are possible to be incurred in a sooner period. These liabilities are not recorded on the balance sheet until it is probable and occurs.

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