Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 13, Problem 13.6P
Various contingencies
• LO13–5, LO13–6
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2018 financial statements are issued on March 15, 2019.
a. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2019, judgment was rendered against Eastern in the amount of $107 million plus interest, a total of $122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
b. In November 2017, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2019, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $140 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.
c. Eastern is the plaintiff in a $200 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.
d. At March 15, 2019, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $33 million are reasonably possible.
Required:
1. Determine the appropriate means of reporting each situation. Explain your reasoning.
2. Prepare any necessary
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Problem 13-6 (Algo) Various contingencies [LO13-5, 13-6]
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern's fiscal year ends December 31, and the 2021 financial statements are issued on March 15, 2022.
a. Eastern is involved in a lawsuit resulting from a dispute with a supplier On February 3, 2022, judgment was rendered against Eastern in the amount of $111 million plus interest, a total of $126 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
b. In November 2020, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2022, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $144 million will be…
#20Chryzza company carried a provision of P4,000,000 in its draft financial statements for the year ended December 31, 2018 inrelation to an unresolved court case. On January 31, 2019, when the financial statements for the year ended December 31,2018 had not yet been authorized for issue, the case was settled and the court decided the final total damages payable by Carloto be P6,000,000. What amount should be adjusted on December 31, 2018 in relation to this event?
PLS provide solution and explanation for the answer above
Philippines Accounting standard
Problem 1
On March 1, 2019, a suit was filed against ABC Company for patent infringement. ABC's legal
counsel believed an unfavorable outcome is probable and estimated that the entity will have
to pay between P850,000 and P900,000 in damages.
However, ABC's legal counsel is of the opinion that P600,000 is a better estimate than any
other amount in the range.
The situation was unchanged when December 31, 2019 financial statements were released
on February 15,2020.
What amount should be accrued as liability on December 31, 2019 in connection with this law
suit?
Problem 2
On February 5, 2020, an employee filed a P2,000,000 lawsuit against XYZ Company for
damages suffered when plant of the entity exploded on December 29, 2019. The entity's legal
counsel believed the entity will probably lose the lawsuit and estimated the loss to be
P500,000.
The employee has offered to settle the lawsuit out of court for P900,000 but the entity will not
agree to the settlement.
On December 31, 2019, what…
Chapter 13 Solutions
Intermediate Accounting
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