
Concept explainers
Various contingencies
• LO13–5, LO13–6
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2018 financial statements are issued on March 15, 2019.
a. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2019, judgment was rendered against Eastern in the amount of $107 million plus interest, a total of $122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
b. In November 2017, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2019, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $140 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.
c. Eastern is the plaintiff in a $200 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.
d. At March 15, 2019, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $33 million are reasonably possible.
Required:
1. Determine the appropriate means of reporting each situation. Explain your reasoning.
2. Prepare any necessary

Want to see the full answer?
Check out a sample textbook solution
Chapter 13 Solutions
Intermediate Accounting
- Can you solve this general accounting problem using appropriate accounting principles?arrow_forwardPlease explain the solution to this general accounting problem with accurate principles.arrow_forwardIf a business buys supplies on credit, which of the following accounts will be affected?a) Supplies and Accounts Payableb) Cash and Suppliesc) Accounts Receivable and Suppliesd) Supplies and CashAnswerarrow_forward
- I am looking for a reliable way to solve this financial accounting problem using accurate principles.arrow_forwardI need help solving this general accounting question with the proper methodology.arrow_forwardJimmy Entertainment Corporation was organized on March 1, 2018. During 2020, Jimmy Entertainment issued 30,000 shares at $12 per share, purchased 3,500 shares of treasury stock at $14 per share, and had a net income of $210,000. What is the total amount of stockholders' equity at December 31, 2020?arrow_forward
- Please explain the solution to this general accounting problem with accurate principles.arrow_forwardI am looking for the correct answer to this general accounting question with appropriate explanations.arrow_forwardI need help solving this financial accounting question with the proper methodology.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
