. (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)?
. (Learning Objective 5: Report a
2018 totaled $27.1 million. As with most companies, Pine is a defendant in lawsuits related to
its products. Note 14 of the Pine annual report for 2018 reported the following:
14. Contingencies
The company is involved in various legal proceedings.... It is the Company’s
policy to accrue for amounts related to these legal matters if it is probable
that a liability has been incurred and an amount is reasonably estimable.
Requirements
1. Suppose Pine’s lawyers believe that a significant legal judgment against the company is
reasonably 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 rendered
against the company. In general terms, how would this situation be reported in Pine’s
financial statements (using U.S. GAAP)?
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