Financial Accounting (12th Edition) (What's New in Accounting)
Financial Accounting (12th Edition) (What's New in Accounting)
12th Edition
ISBN: 9780134725987
Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
Publisher: PEARSON
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Chapter 8, Problem 8.29BE

1.

To determine

To explain: How the given legal proceedings should disclose

2.

To determine

To report: The lawsuit contingency in DS System’s financial statements.

To determine

To Journalize: The estimated loss (or expense) and estimated liability due to lawsuit contingency.

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Students have asked these similar questions
. (Learning Objective 5: Report a contingent liability) Pine Systems’ revenues for LO 52018 totaled $27.1 million. As with most companies, Pine is a defendant in lawsuits related toits products. Note 14 of the Pine annual report for 2018 reported the following:14. ContingenciesThe company is involved in various legal proceedings.... It is the Company’spolicy to accrue for amounts related to these legal matters if it is probablethat a liability has been incurred and an amount is reasonably estimable.Requirements1. Suppose Pine’s lawyers believe that a significant legal judgment against the company isreasonably possible. How should Pine report this situation in its financial statements?2. Suppose Pine’s lawyers believe it is probable that a $2.1 million judgment will be renderedagainst the company. In general terms, how would this situation be reported in Pine’sfinancial statements (using U.S. GAAP)?
Item B. Contingent Liability Facts: You are auditing a very successful and highly profitable manufacturing company as of December 31, 2020. The Company has always maintained adequate insurance in different areas. The Company has decided, effective January 1, 2021, not to purchase insurance against risk of loss that may result from injury to others, damage to the property of others, or interruption of its business operations. The Company would like to record a $5,000,000 reserve as of December 31, 2020 for claims associated with future events which may occur.   Required: Should the Company record this $5,000,000 Reserve for Claims (a contingent liability) in its 12/31/2020 Financial Statements? Why or why not?
Answer all questions.

Chapter 8 Solutions

Financial Accounting (12th Edition) (What's New in Accounting)

Ch. 8 - Potential liabilities that depend on future events...Ch. 8 - A contingent liability should be recorded in the...Ch. 8 - Prob. 8.1ECCh. 8 - Prob. 8.1SCh. 8 - Prob. 8.2SCh. 8 - Prob. 8.3SCh. 8 - Prob. 8.4SCh. 8 - (Learning Objective 3: Account for a short-term...Ch. 8 - Prob. 8.6SCh. 8 - (Learning Objective 4: Report warranties in the...Ch. 8 - (Learning Objective 4: Account for accrued...Ch. 8 - (Learning Objective 5: Interpret a companys...Ch. 8 - Prob. 8.10AECh. 8 - Prob. 8.11AECh. 8 - LO 3 (Learning Objective 3: Purchase inventory,...Ch. 8 - (Learning Objective 3: Record note payable...Ch. 8 - (Learning Objective 3: Account for a short-term...Ch. 8 - Prob. 8.15AECh. 8 - Prob. 8.16AECh. 8 - Prob. 8.17AECh. 8 - Prob. 8.18AECh. 8 - Prob. 8.19AECh. 8 - Prob. 8.20BECh. 8 - Prob. 8.21BECh. 8 - LO 3 (Learning Objective 3: Purchase inventory,...Ch. 8 - Prob. 8.23BECh. 8 - Prob. 8.24BECh. 8 - Prob. 8.25BECh. 8 - Prob. 8.26BECh. 8 - Prob. 8.27BECh. 8 - (Learning Objectives 1, 2, 3, 4: Report current...Ch. 8 - Prob. 8.29BECh. 8 - Prob. 8.30QCh. 8 - For the purpose of classifying liabilities as...Ch. 8 - Prob. 8.32QCh. 8 - Prob. 8.33QCh. 8 - Prob. 8.34QCh. 8 - Prob. 8.35QCh. 8 - Prob. 8.36QCh. 8 - Prob. 8.37QCh. 8 - Prob. 8.38QCh. 8 - Prob. 8.39QCh. 8 - Prob. 8.40QCh. 8 - Prob. 8.41QCh. 8 - Prob. 8.42QCh. 8 - Prob. 8.43QCh. 8 - Group A LO 1, 2, 3, 4 (Learning Objective 1, 2, 3,...Ch. 8 - Prob. 8.45APCh. 8 - LO 1, 2, 3, 4 (Learning Objectives 1, 2, 3, 4:...Ch. 8 - LO 4, 5 (Learning Objectives 4, 5: Account for...Ch. 8 - Group B LO 1, 2, 3, 4 (Learning Objectives 1, 2,...Ch. 8 - Prob. 8.49BPCh. 8 - Prob. 8.50BPCh. 8 - Prob. 8.51BPCh. 8 - Prob. 8.52CEPCh. 8 - Prob. 8.53SCCh. 8 - Prob. 8.54DCCh. 8 - Prob. 8.55DCCh. 8 - Prob. 8.56EICCh. 8 - Prob. 1FFCh. 8 - Prob. 1GP
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