Therefore, more than $25,000 should be recorded – the $50,000 (two payouts and the expected value) can be justified.
10. Accounting for the lawsuit is complicated at this stage because the company and/or the lawyer would be unwilling to admit in print (i.e., in the financial statements) that they would settle the lawsuit, and at what amount. This might provide too much information to the plaintiff that hurt company interests. Note disclosure of the lawsuit, in general terms, is the likely outcome, although an accrual for $150,000 would be made if the company were to share this information with its accountants. This is the ethically appropriate outcome. When the accrual is made, separate disclosure would be minimal so its treatment would not be obvious to the plaintiff. 11. A purchase order is an executory contract, and is not a liability until the other party performs its obligations under the contract. That is, the amount becomes a liability when the goods are delivered, but not until then. Some liability would be recognized if the contract became an onerous contact. This would happen if the fair value of the goods were to fall below $10 per case. A liability would be recognized for the amount of the loss because that amount has no economic value.
12. A provision for warranty work will be recorded in 20X3 because the company has