Toy Company provided the following facts regarding pending litigation on December 31, 2020: • The entity is defending against a first lawsuit and believes there is a 51% chance it will lose in court. The entity estimates that damages will be P1,000,000. • The entity is defending against a second lawsuit for which management believes it is virtually certain to lose in court. •If it loses the lawsuit, management estimates damages will fall somewhere in the range of P3,000,000 to P5,000,000 with each amount in that range equally likely to occur. • The entity is defending against a third lawsuit but the relevant loss will only occur far into the future. The present values of the endpoints of the range are P1,500,000 and P2,500,000. The management believes the effects of time value of money on these amounts are material but also believes the timing of these amounts is uncertain. The entity is defending against a fourth lawsuit and believes there is only a 25% chance it will lose in court. If the entity loses, management believes damages will fall somewhere in the range of P3,000,000 to P4,000,000 with each amount in that range equally likely to occur. What is the total amount that should be reported as accrued litigation liability at year-end? a. 5,500,000 b. 7,000,000 C. 8,000,000 D. 8,500,000
Toy Company provided the following facts regarding pending litigation on December 31, 2020:
• The entity is defending against a first lawsuit and believes there is a 51% chance it will lose in court. The entity estimates that damages will be P1,000,000.
• The entity is defending against a second lawsuit for which management believes it is virtually certain to lose in court.
•If it loses the lawsuit, management estimates damages will fall somewhere in the range of P3,000,000 to P5,000,000 with each amount in that range equally likely to occur.
• The entity is defending against a third lawsuit but the relevant loss will only occur far into the future. The present values of the endpoints of the range are P1,500,000 and P2,500,000.
The management believes the effects of time value of money on these amounts are material but also believes the timing of these amounts is uncertain.
The entity is defending against a fourth lawsuit and believes there is only a 25% chance it will lose in court.
If the entity loses, management believes damages will fall somewhere in the range of P3,000,000 to P4,000,000 with each amount in that range equally likely to occur.
What is the total amount that should be reported as accrued litigation liability at year-end?
a. 5,500,000 b. 7,000,000 C. 8,000,000 D. 8,500,000
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