Discuss how and whether the contingency should be reflected

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Reference no: EM132072546

As a result of uninsured accidents during the year, personal injury suits for $400,000 and $70,000 have been filed against the company. It is the judgment of XYZ Company's legal counsel that an unfavorable outcome is unlikely in the $70,000 case but that an unfavorable verdict approximating $300,000 will probably result in the $400,000 case.

On December 31, 2017, High Tech, Inc. learned that its competitor had introduced a product using a software development over which High Tech has exclusive patent rights. High Tech filed suit and its attorneys felt, it was probable that the company should recover at least $600,000. The company's December 31, 2017 year-end financial statements were issued on March, 15, 2018.

At the end of its first year of operations, the Medina Company has a balance in accounts receivable of $1,500,000. Based on an aging of the accounts receivable, the company believes it probable that it will be unable to collect $70,000 of these receivables.

Chemco's chemical product division consisting of five plants is uninsurable because of the special risk of injury to employees and losses due to fire and explosion. The year 2017is considered one of the safest (luckiest) in the division's history because no loss due to injury or casualty was suffered. Having suffered an average of three casualties a year during the rest of the past decade (ranging from $100,000 to $800,000), management is certain that next year the company will probably not be so fortunate.

ABC Credit Cards Inc is being sued for antitrust violations related to its credit card activities. The company's attorneys believe that it is probable that findings of antitrust violations will be sustained against the company. The attorneys' estimate of losses is from $20,000,000 to $40,000,000, with the most likely expected settlement to be around $25,000,000.

ABC Credit Cards Inc is being sued for antitrust violations related to its credit card activities. The company's attorneys believe that it is probable that findings of antitrust violations will be sustained against the company. The attorneys' best estimate of losses is from $20,000,000 to $40,000,000, with no amount within the range more likely than any other.

The company sells certain products with lithium batteries for which it is sued from time to time for losses due to fires from spontaneous overheating of the batteries. At the end of the year the company believes that there are unasserted claims that its legal counsel believes probably will be asserted and that the losses may range from $1,000,000 to $2,000,000.

Required:

For each situation, discuss how and whether the contingency should be reflected in the company's financial statements. If the contingency should be accrued, prepare the journal entry. If the company were following IFRS, would the answer be different on any of the situations described?

Reference no: EM132072546

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