Chapter 13, Problem 1JC

1.

To determine

Whether the company should accrue, disclose or not report at all the contingency in the financial statement dated 31^st December 2018.

Given information:

The company has gone through a case in which P sued for patent infringement. As of December 31^st, 2018, the case was in the early stage and the company believed that they are likely to win. By the end of the year 2019, the case progressed and potential liability was estimated between $1 million to $3 million. By 31^st March 2020 the company realized that they are going to lose the case while the loss estimated at that time was $4 million.

2.

To determine

How the contingency should be reported as of December 31^st, 2019.

3.

To determine

How the contingency should be reported as of December 31^st, 2020.