Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 2SSC
Surfing the Standards Case 2: Amounts Paid by Shareholders for an Entity’s Expenses
Moocher Company, a publicly traded company that has a December 31 year-end manufactures and sells novelty toys. Recently, one of the toys that Moocher produced and sold was found to cause serious digestive problems for dogs that ate the toy. Accordingly, Moocher was sued by a group of consumers in May of the current year. Moocher didn't believe that it would lose the suit in a court ruling, but it did not want the bad publicity. Because Moocher did not have extensive cash reserves, the primary shareholder (55% owner) of Moocher transferred 40,000 shares to the plaintiffs to settle the case in December of the current year. The market value of the shares was $25 per share at the time of the transfer.
Does Moocher Company need to report anything in its annual financial statements for the current year related to this transaction?
Use the U.S. authoritative literature to support your conclusions.
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Allowance for Legal Liability - Income Statement vs. Tax Form
A. On November 14, 2013 a delivery truck of the Boone Company jumped the
curb in a quiet residential neighborhood, running into a bus stop where twelve
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including four fatalities. In 2013 Boone estimates that the total costs it will incur
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By the end of 2017 all related legal matters had been resolved, and the actual
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these years:
2013
2014
2015
2016
2017
Cumulative
Total
Actual
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$19
$20
$14
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$13
$78
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Таx Form…
GINGERBREAD Company is involved in a litigation regarding a faulty product sold in a prior year. The entity has consulted with lawyer and determined that there is a 50% chance of losing. The lawyer estimated that the amount of any payment would be between ₱500,000 to ₱800,000 with ₱500,000 as the best estimate. What is the required journal entry as a result of this litigation? *
a. No journal entry is required
b. Debit Litigation expense and credit Litigation liability for ₱ 500,000
c. Debit Litigation expense and credit Litigation liability for ₱ 250,000
d. Debit Litigation expense and credit Litigation liability for ₱ 650,000
ABC Inc. has is being sued by a customer. The
plaintiff (customer) claims $50,000 for product
deficiencies. The controller discussed the
claim with legal counsel and the lawyer notes
that the company is likely to lose the suit with
an estimated payout of $50,000. The
controller has identified this as a contingent
loss (liability) and has accrued it in the
financial statements and prepared the note
disclosure.
The financial statement note disclosure states
the following:
"During the year, ABC Inc. received a claim for
an alleged product deficiency. ABC Inc. is
defending the action however legal advice at
this time indicated that is likely the claim
could result in a loss for ABC İnc."
ABC Inc. reports under ASPE.
Required:
a) Provide the path to the appropriate
reference in the Handbook assuming the
entity follows ASPE.
b) Indicate what is missing from the note
disclosure, if anything, for ABC Inc.
Chapter 5 Solutions
Intermediate Accounting
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