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.