PC Inc., a competitor of Champion Incorporated, filed a lawsuit against Champion for $430,000. Champion's lawyers reviewed the lawsuit and believe that, although PC has a valid case, the suit can be settled out of court for $210,000. Required 1. Assuming Champion Incorporated follows ASPE, indicate (yes or no) whether the company should recognize a contingent liability in its financial statements. s) 2. Indicate why a contingent liability should or should not be recognized. (0

PC Inc., a competitor of Champion Incorporated, filed a lawsuit against Champion for $430,000. Champion's lawyers reviewed the lawsuit and believe that, although PC has a valid case, the suit can be settled out of court for $210,000. Required 1. Assuming Champion Incorporated follows ASPE, indicate (yes or no) whether the company should recognize a contingent liability in its financial statements. s) 2. Indicate why a contingent liability should or should not be recognized. (0

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter4: Balance Sheet: Presenting And Analyzing Resources And Financing

Section: Chapter Questions

Problem 9Q

See similar textbooks

Similar questions

Huprey Company is the defendant in the following legal claims. For each of the following separate claims, indicate whether Huprey should (a) record a liability, (b) disclose in notes, or (c) have no disclosure. 1. Huprey is very likely to lose a pending lawsuit. It reasonably estimates that damages paid will be $1,070,000. 2. It is reasonably possible that Huprey will lose a pending lawsuit. Huprey and its lawyers cannot estimate what the damages will be if it loses. 3. There is a remote (unlikely) chance Huprey will lose a pending lawsuit. The plaintiff is suing Huprey for $5,000,000. 4 4
Swell Company has a lawsuit pending from a customer claiming damages of $100,000. Swell’s attorney advises that the likelihood the customer will win is remote. GAAP requires at a minimum that this contingent liability be a. disclosed in the footnotes. b. disclosed in the footnotes, with ranges of potential loss. c. recorded as a journal entry, as well as disclosed in the footnotes. d. No disclosure is required.
AXE Co. is the defendant in a lawsuit. AXE reasonably estimates that this pending lawsuit will result in damages of $99,000. It is probably that AXE will lose the case. What should AXE do? Group of answer choices a. Record a liability b. Disclose in notes c. Have no disclosure
We discussed contingent liabilities in class. Describe the conditions for when a contingent liability must be recorded through a journal entry, when it should be disclosed in the footnotes and when neither a journal entry nor disclosure is required? Assume that Mojito Corporation is sued by Dulcinea, Inc. for $1,000,000. Mojito’s attorneys believe that it is probable that the company will lose the suit and have to pay between $300,000 and $400,000 to Dulcinea. Based on your answer to a, what should Mojito do?
Describe the conditions for when a contingent liability must be recorded through a journal entry, when it should be disclosed in the footnotes and when neither a journal entry nor disclosure is required? Assume that Mojito Corporation is sued by Dulcinea, Inc. for $1,000,000. Mojito’s attorneys believe that it is probable that the company will lose the suit and have to pay between $300,000 and $400,000 to Dulcinea. Based on your answer to a, what should Mojito do?
A lawsuit has been filed against Sunland Company for wrongful termination. Sunland's legal counsel had encouraged the company to settle because it is likely they will lose the case. The amount of the loss is estimated to be between $573000 and $1062000. Legal counsel believes that the case could be settled for $864000. Sunland should report O a contingent liability for $864000. O an estimated liability for $573000. O a contingent loss of $1062000. O no loss or liability until the case is settled. Attempts: 0 of 1 used Submit Answer
Machine Corp. has several pending lawsuits against its company. Review each situation: A. A pending lawsuit, claiming $117,000 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. B. Machine Corp. believes there might be other potential lawsuits about this faulty machinery, but this is unlikely to occur. C. A claimant sues Machine Corp. for damages, from a dishonored service contract agreement; the plaintiff will likely win the case but damages cannot be reasonably estimated. D. Machine Corp. believes a customer will win a lawsuit it filed, but the outcome is not likely and is not remote. It is possible the customer will win. 1 and 2. Which of the above situations require recognition in the financial statements and which require note disclosure only? a. A must be recognized and requires note disclosure; C and D require note disclosure only. b. All four cases require note disclosure only. c. A, C, and D must be recognized; B requires note…
Machine Corp. has several pending lawsuits against its company. Review each situation: A. A pending lawsuit, claiming $120,000 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. B. Machine Corp. believes there might be other potential lawsuits about this faulty machinery, but this is unlikely to occur. C. A claimant sues Machine Corp. for damages, from a dishonored service contract agreement; the plaintiff will likely win the case but damages cannot be reasonably estimated. D. Machine Corp. believes a customer will win a lawsuit it filed, but the outcome is not likely and is not remote. It is possible the customer will win. 1 and 2. Which of the above situations require recognition in the financial statements and which require note disclosure only? a. A must be recognized and requires note disclosure; C and D require note disclosure only. b. All four cases require note disclosure only. c. A, C, and D must be recognized; B requires note…
Machine Corp. has several pending lawsuits against its company. Review each situation and (1) determine the treatment for each situation as probable and estimable, probable and inestimable, reasonably possible, or remote; (2) determine what, if any, recognition or note disclosure is required; and (3) prepare any journal entries required to recognize a contingent liability. A. A pending lawsuit, claiming $100,000 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. B. Machine Corp. believes there might be other potential lawsuits about this faulty machinery, but this is unlikely to occur. C. A claimant sues Machine Corp. for damages, from a dishonored service contract agreement; the plaintiff will likely win the case but damages cannot be reasonably estimated. D. Machine Corp. believes a customer will win a lawsuit it filed, but the outcome is not likely and is not remote. It is possible the customer will win.
Swell Company has a lawsuit pending from a customer claiming damages of $100,000. Swell’s attorney advises that the likelihood the customer will win is remote. GAAP requires at a minimum that this contingent liability be disclosed in the footnotes. disclosed in the footnotes, with ranges of the potential loss. recorded as a journal entry, as well as disclosed in the footnotes. No disclosure is required.
Huprey Co. is the defendant in the following legal claims. For each of the following claims, indicatewhether Huprey should (a) record a liability, (b) disclose in notes, or (c) have no disclosure. Huprey can reasonably estimate that a pending lawsuit will result in damages of $1,250,000. It is probable that Huprey will lose the case.
For each of the independent situations below indicate the appropriate accounting treatment and note disclosure. Question 4 options: A judge has found the company to be liable for an amount of $400,000 for copyright infringement. The company's lawyers feel that an appeal is unlikely to succeed. The company is being sued as a result of selling a product that made its customers sick. Legal counsel believes the lawsuit will be successful but is unable to estimate the amount of damages the company will have to pay. The company is being sued for patent infringement. Legal counsel believes that the claim is frivolous and that the likelihood of a successful lawsuit is remote. A customer fell on ice outside the company's store. Legal counsel feels that it is only thirty percent likely that a lawsuit will be successful. 1. Record a liability and disclose the situation in the notes. 2. Do not…