The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus’s fiscal year ends onDecember 31. Financial statements are issued in March 2019. Erismus prepares its financial statements accordingto U.S. GAAP.Required:Indicate the amount of asset or liability that Erismus would record, and explain your answer.1. Erismus is defending against a lawsuit. Erismus’s management believes the company has a slightly worse than50/50 chance of eventually prevailing in court, and that if it loses, the judgment will be $1,000,000.2. Erismus is defending against a lawsuit. Erismus’s management believes it is probable that the company willlose in court. If it loses, management believes that damages could fall anywhere in the range of $2,000,000 to$4,000,000, 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 willlose in court. If it loses, management believes that damages will eventually be $5,000,000, with a presentvalue of $3,500,000.4. Erismus is a plaintiff in a lawsuit. Erismus’s management believes it is probable that the company eventuallywill prevail in court, and that if it prevails, the judgment will be $1,000,000.5. Erismus is a plaintiff in a lawsuit. Erismus’s management believes it is virtually certain that the companyeventually will prevail in court, and that if it prevails, the judgment will be $500,000.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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 2019. Erismus prepares its financial statements according
to U.S. GAAP.
Required:
Indicate the amount of asset or liability that Erismus would record, and explain your answer.
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 $1,000,000.
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 $2,000,000 to
$4,000,000, 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 $5,000,000, with a present
value of $3,500,000.
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 $1,000,000.
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 $500,000.
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