Principles of Accounting Volume 1
19th Edition
ISBN: 9781947172685
Author: OpenStax
Publisher: OpenStax College
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 12, Problem 6PA
Machine Corp. has several pending lawsuits against its company. Review each situation and (1) determine the treatment for each situation as probable and estimable, probable and inestimable, reasonably possible, or remote; (2) determine what, if any, recognition or note disclosure is required; and (3) prepare any
A. A pending lawsuit, claiming $100,000 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.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these 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…
Machine Corp. has several pending lawsuits against its company. Review each situation:
A. A pending lawsuit, claiming $117,000 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…
Huprey Company is the defendant in the following legal claims. For each of the following separate claims, indicate whether Huprey
should (a) record a liability, (b) disclose in notes, or (c) have no disclosure.
1. Huprey is very likely to lose a pending lawsuit. It reasonably estimates that damages paid will be $1,070,000.
2. It is reasonably possible that Huprey will lose a pending lawsuit. Huprey and its lawyers cannot estimate what the damages will be if it loses.
3. There is a remote (unlikely) chance Huprey will lose a pending lawsuit. The plaintiff is suing Huprey for $5,000,000.
4
4
Chapter 12 Solutions
Principles of Accounting Volume 1
Ch. 12 - Which of the following is not considered a current...Ch. 12 - A company regularly purchases materials from a...Ch. 12 - The following is selected financial data from...Ch. 12 - A ski company takes out a $400,000 loan from a...Ch. 12 - Nido Co. has a standing agreement with a supplier...Ch. 12 - A client pays cash in advance for a magazine...Ch. 12 - Lime Co. incurs a $4,000 note with equal principal...Ch. 12 - Which of the following best describes a contingent...Ch. 12 - Blake Department Store sells television sets with...Ch. 12 - What accounts are used to record a contingent...
Ch. 12 - Which of the following best describes a contingent...Ch. 12 - Which of the following accounts are used when a...Ch. 12 - Which of the following is not a characteristic of...Ch. 12 - Sunlight Growers borrows $250,000 from a bank at a...Ch. 12 - Marathon Peanuts converts a $130,000 account...Ch. 12 - An employee earns $8,000 in the first pay period....Ch. 12 - Which of the following is considered an employer...Ch. 12 - Employees at Rayon Enterprises earn one day a...Ch. 12 - An employee and employer cost-share health...Ch. 12 - Why is Accounts Payable classified as a current...Ch. 12 - On which financial statement are current...Ch. 12 - What is the difference between a noncurrent...Ch. 12 - How is the sales tax rate usually determined? Does...Ch. 12 - If Bergen Air Systems takes out a $100,000 loan,...Ch. 12 - What amount is payable to a state tax board if the...Ch. 12 - What specific accounts are recognized when a...Ch. 12 - What is a contingent liability?Ch. 12 - What are the two FASB required conditions for a...Ch. 12 - If a bankruptcy is deemed likely to occur and is...Ch. 12 - Name the four contingent liability treatments.Ch. 12 - A companys sales for January are $250,000. If the...Ch. 12 - What is a key difference between a short-term note...Ch. 12 - What business circumstance could bring about a...Ch. 12 - What business circumstance could produce a...Ch. 12 - Jain Enterprises honors a short-term note payable....Ch. 12 - What are examples of involuntary deductions...Ch. 12 - What are the tax rates for FICA Social Security...Ch. 12 - What are FUTA and SUTA taxes? Is there any...Ch. 12 - Use Figure 12.15 as a reference to answer the...Ch. 12 - Campus Flights takes out a bank loan in the amount...Ch. 12 - Consider the following accounts and determine if...Ch. 12 - Lamplight Plus sells lamps to consumers. The...Ch. 12 - Review the following transactions and prepare any...Ch. 12 - Review the following transactions and prepare any...Ch. 12 - Elegant Electronics sells a cellular phone on...Ch. 12 - Homeland Plus specializes in home goods and...Ch. 12 - Bhakti Games is a chain of board game stores....Ch. 12 - Following is the unadjusted trial balance for Sun...Ch. 12 - Barkers Baked Goods purchases dog treats from a...Ch. 12 - Use information from EA10. Compute the interest...Ch. 12 - Scrimiger Paints wants to upgrade its machinery...Ch. 12 - Following are payroll deductions for Mars Co....Ch. 12 - Toren Inc. employs one person to run its solar...Ch. 12 - In EA14, you prepared the journal entries for the...Ch. 12 - An employee and employer cost-share pension plan...Ch. 12 - Everglades Consultants takes out a loan in the...Ch. 12 - Match each of the following accounts with the...Ch. 12 - Pianos Unlimited sells pianos to customers. The...Ch. 12 - Review the following transactions and prepare any...Ch. 12 - Review the following transactions and prepare any...Ch. 12 - Monster Drinks sells twenty-four cases of...Ch. 12 - McMasters Inc. specializes in BBQ accessories. In...Ch. 12 - Following is the unadjusted trial balance for Pens...Ch. 12 - Airplanes Unlimited purchases airplane parts from...Ch. 12 - Use information from EB9. Compute the interest...Ch. 12 - Whole Leaves wants to upgrade their equipment, and...Ch. 12 - Reference Figure 12.15 and use the following...Ch. 12 - Marc Associates employs Janet Evanovich at its...Ch. 12 - In EB13, you prepared the journal entries for...Ch. 12 - An employee and employer cost-share 401(k) plan...Ch. 12 - Consider the following situations and determine...Ch. 12 - Stork Enterprises delivers care packages for...Ch. 12 - Review the following transactions, and prepare any...Ch. 12 - Review the following transactions, and prepare any...Ch. 12 - Review the following transactions, and prepare any...Ch. 12 - Machine Corp. has several pending lawsuits against...Ch. 12 - Emperor Pool Services provides pool cleaning and...Ch. 12 - Serene Company purchases fountains for its...Ch. 12 - Mohammed LLC is a growing consulting firm. The...Ch. 12 - Lemur Corp. is going to pay three employees a...Ch. 12 - Record the journal entries for each of the...Ch. 12 - Consider the following situations and determine...Ch. 12 - Perfume Depot sells two different tiers of perfume...Ch. 12 - Review the following transactions, and prepare any...Ch. 12 - Review the following transactions and prepare any...Ch. 12 - Review the following transactions and prepare any...Ch. 12 - Roundhouse Tools has several potential warranty...Ch. 12 - Shoe Hut sells custom, handmade shoes. It offers a...Ch. 12 - Air Compressors Inc. purchases compressor parts...Ch. 12 - Pickles R Us is a pickle farm located in the...Ch. 12 - Use Figure 12.15 to complete the following...Ch. 12 - Use the information from PB10 to complete this...
Additional Business Textbook Solutions
Find more solutions based on key concepts
How do ethics impact decision-making with small-business owners?
Principles of Management
Ravenna Candles recently purchased candleholders for resale in its shops. Which of the following costs would be...
Financial Accounting (12th Edition) (What's New in Accounting)
Define cost pool, cost tracing, cost allocation, and cost-allocation base.
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
E2-13 Identifying increases and decreases in accounts and normal balances
Learning Objective 2
Insert the mis...
Horngren's Accounting (11th Edition)
Discussion Questions 1. What characteristics of the product or manufacturing process would lead a company to us...
Managerial Accounting (5th Edition)
This cost data from Hickory Furniture is for the year 2017. Using the high-low method, express the companys uti...
Principles of Accounting Volume 2
Knowledge Booster
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
- Darren Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and the court will decide the case within one year. the Darren Company admits guilt. the cause for action occurred during the accounting period covered by the financial statements. the damages appear to be material.arrow_forwardTweedy Inc. prepares its financial statements according to International Accounting Standards (IFRS). It recently estimated that it has a 99 percent chance of winning a lawsuit. Assuming Tweedy can reliably estimate the amount it would receive if it wins the lawsuit, it should. a. Accrue an asset for the lawsuit. b. Disclose the matter in the notes to the financial statements but not accrue an asset for the lawsuit. c. Make no mention of the lawsuit in the financial statements or notes. d. None of the above.arrow_forwardFor each of the independent situations below indicate the appropriate accounting treatment and note disclosure. Question 4 options: A judge has found the company to be liable for an amount of $400,000 for copyright infringement. The company's lawyers feel that an appeal is unlikely to succeed. The company is being sued as a result of selling a product that made its customers sick. Legal counsel believes the lawsuit will be successful but is unable to estimate the amount of damages the company will have to pay. The company is being sued for patent infringement. Legal counsel believes that the claim is frivolous and that the likelihood of a successful lawsuit is remote. A customer fell on ice outside the company's store. Legal counsel feels that it is only thirty percent likely that a lawsuit will be successful. 1. Record a liability and disclose the situation in the notes. 2. Do not…arrow_forward
- Pacific Cruise Lines is a defendant in litigation involving a swimming accident on one of its three cruise ships.Required:For each of the following scenarios, determine the appropriate way to report the situation.Explain your reasoning and record any necessary entry.1. The likelihood of a payment occurring is probable, and the estimated amount is $1.3 million.2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $1.1 to $1.6 million.3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $1.3 million.4. The likelihood of a payment occurring is remote, while the estimated potential amount is $1.3 million.arrow_forwardAXE Co. is the defendant in a lawsuit. AXE reasonably estimates that this pending lawsuit will result in damages of $99,000. It is probably that AXE will lose the case. What should AXE do? Group of answer choices a. Record a liability b. Disclose in notes c. Have no disclosurearrow_forwardHuprey Co. is the defendant in the following legal claims. For each of the following claims, indicatewhether Huprey should (a) record a liability, (b) disclose in notes, or (c) have no disclosure. It is reasonably possible that Huprey will lose a pending lawsuit. The loss cannot be estimated.arrow_forward
- AXE Co. is the defendant in a lawsuit. AXE reasonably estimates that this pending lawsuit will result in damages of $99,000. It is probable that AXE will lose the case. What should AXE do? a. Record a liability c. Have no disclosure b. Disclose in notesarrow_forwardDwayne Company, a manufacturer of viagra has had a lawsuit filed against it by Vic Incorporated, another manufacturer of viagra. The suit alleges patent right PROBLEM 26-28 Contingencies infringements by Dwayne Company and asks for compensatory damages. For the following likely situations, determine how Dwayne Company should report the information concerning the lawsuit. The choices are: a. Accrue and disclose b. Disclose only Accrue only d. Neither accrue nor disclose combrere 1000 iM 000,000,S9 С. 000 Assume the following independent cases: 1. Dwayne Company's legal counsel estimates that the infringement case may result in a loss of P2,000,000 but considers the likelihood of losing the case as remote. 2. Dwayne Company's legal counsel is convinced that the likelihood of losing the case is probable, the potential amount of the loss is estimated to be no P2,300,000. 3. Dwayne Company's legal counsel estimates that the infringement case may bad result in a loss of P2,400,000 but…arrow_forwardA newspaper accuses a public figure of being a mafia even though they know this is not true. The public figure sues and both set of lawyers agree it is likely that the public figure will win the case and receive damages in the order of $1million. There is no possibility of the case being resolved before the financial statements are finalized. Required: Discuss how the litigation will be represented in the financial statements of both entities; the newspaper and the public figure.arrow_forward
- As a result of an allegedly defective equipment causing harm to an employee, an entity is facing a lawsuit requesting damages. The entity's legal counsel estimates that there is an approximately 60% possibility that the entity will lose the case and that it will have to pay an amount between $100,000 and $200,000 with no amount within such range being more likely than any other amount in the range. How much should the entity record as a contingent loss, if any? (Select the best answer.) a. O $0 b. $60,000 c. O $100,000 d. O $150,000arrow_forwardOn December 31, 2014, SBMA Inc. was a defendant in three litigations provided below: The first case is about environmental violation and the legal counsel determined that it isreasonably possible that SBMA will become liable in a the range of P4,000,000 to P6,000,000. The second case is about illegal dismissal and the legal counsel determined that it is remotethat SBMA will become liable in a reliable estimate of P3,000,000. The third case is about patent infringement and the legal counsel determined that it is probablethat SBMA will become liable in the following expected value:P2,000,000 - 50%P5,000,000 - 30%P10,000,000 - 20%Required: Determine the following for the year ended December 31, 2014:__________1. Accrued Provision on December 31, 2014__________2. Disclosed Contingent Liability on December 31, 2014arrow_forwardProWasher 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?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
