FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus’s fiscal year ends on
December 31. Financial statements are issued in March 2019. Erismus prepares its financial statements according
to U.S. GAAP.
Required:
Indicate the amount of asset or liability that Erismus would record, and explain your answer.
1. Erismus is defending against a lawsuit. Erismus’s management believes the company has a slightly worse than
50/50 chance of eventually prevailing in court, and that if it loses, the judgment will be $1,000,000.
2. Erismus is defending against a lawsuit. Erismus’s management believes it is probable that the company will
lose in court. If it loses, management believes that damages could fall anywhere in the range of $2,000,000 to
$4,000,000, with any damage in that range equally likely.
3. Erismus is defending against a lawsuit. Erismus’s management believes it is probable that the company will
lose in court. If it loses, management believes that damages will eventually be $5,000,000, with a present
value of $3,500,000.
4. Erismus is a plaintiff in a lawsuit. Erismus’s management believes it is probable that the company eventually
will prevail in court, and that if it prevails, the judgment will be $1,000,000.
5. Erismus is a plaintiff in a lawsuit. Erismus’s management believes it is virtually certain that the company
eventually will prevail in court, and that if it prevails, the judgment will be $500,000.
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