Determine the appropriate accounting for this lawsuit for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.

Question

Waterway Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 45% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $815000. What is the required journal entry as a result of this litigation? Debit Litigation Expense for $366750 and credit Litigation Liability for $366750. Debit Litigation Expense for $448250 and credit Litigation Liability for $448250. No journal entry is required. Debit Litigation Expense for $815000 and credit Litigation liability for $815000.

Answer 1

Question

Chapter 11, Problem 26P

a.

To determine

Determine the appropriate accounting for this lawsuit for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.

b.

To determine

Prepare the entry that Company H would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.

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Waterway Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 45% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $815000. What is the required journal entry as a result of this litigation? Debit Litigation Expense for $366750 and credit Litigation Liability for $366750. Debit Litigation Expense for $448250 and credit Litigation Liability for $448250. No journal entry is required. Debit Litigation Expense for $815000 and credit Litigation liability for $815000.

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