ADVANCED ACCOUNTING-LL
13th Edition
ISBN: 9781260232486
Author: Hoyle
Publisher: MCGRAW-HILL CUSTOM PUBLISHING
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Textbook Question
Chapter 8, Problem 7DYS
ACCOUNTING STANDARDS CASE 2—INTERIM REPORTING
Caplan Pharma, Inc., recently was sued by a competitor for possible infringement of the competitor’s patent on a top-selling flu vaccine. The plaintiff is suing for damages of $15 million. Caplan’s CFO has discussed the case with legal counsel, who believes it is possible that Caplan will not be able to successfully defend the lawsuit. The CFO knows that current U.S. accounting guidelines require that contingencies (such as lawsuits) must be disclosed in the annual report when a loss is possible. However, she is unsure whether this rule must be applied in the preparation of interim financial statements. She also knows that disclosure is necessary only if the amount is material, but she is unsure whether materiality should be assessed in relation to results for the interim period or for the entire year.
Required
Search current U.S. accounting standards to determine whether contingencies are required to be disclosed in interim reports, and, if so, how materiality is to be determined. Identify the source of guidance for answering these questions.
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For each of the independent situations below indicate the appropriate accounting treatment and note disclosure.
Question 4 options:
A judge has found the company to be liable for an amount of $400,000 for copyright infringement. The company's lawyers feel that an appeal is unlikely to succeed.
The company is being sued as a result of selling a product that made its customers sick. Legal counsel believes the lawsuit will be successful but is unable to estimate the amount of damages the company will have to pay.
The company is being sued for patent infringement. Legal counsel believes that the claim is frivolous and that the likelihood of a successful lawsuit is remote.
A customer fell on ice outside the company's store. Legal counsel feels that it is only thirty percent likely that a lawsuit will be successful.
1.
Record a liability and disclose the situation in the notes.
2.
Do not…
Wilhelm Company prepares its financial statements according to International Accounting Standards (IFRS). It recently estimated that it has a 55 percent chance of losing a lawsuit. Assuming Wilhelm can reliably estimate the amount it would pay if it loses the lawsuit, it should. a. Accrue a liability for the lawsuit. b. Disclose the matter in the notes to the financial statements but not accrue a liability for the lawsuit. c. Make no mention of the lawsuit in the financial statements or notes. d. None of the above.
Problem 3
Nia company is involved in litigation regarding a faulty product sold in a prior year. The entity has
consulted with an attormey and determined that is possible that the entity may lose the case.
The Attorney estimated that there is a 40% chance of losing. If this is the case, the attorney estimated
that the amount of any payment would be P5, 000, 000.
What is the required journal entry as a result of this litigation?
A. Debit litigation expense and credit litigation liability P5,000,000
B. No journal entry is required.
C. Debit litigation expense and credit litigation liability P2, 000, 000
D. Debit litigation expense and credit litigation liability P3, 000,000
Chapter 8 Solutions
ADVANCED ACCOUNTING-LL
Ch. 8 - Prob. 1QCh. 8 - Prob. 2QCh. 8 - Prob. 3QCh. 8 - The management approach requires a firm to define...Ch. 8 - What is an operating segment?Ch. 8 - Prob. 6QCh. 8 - Prob. 7QCh. 8 - Prob. 8QCh. 8 - Prob. 9QCh. 8 - Prob. 10Q
Ch. 8 - Prob. 11QCh. 8 - To satisfy geographic area disclosure...Ch. 8 - Prob. 13QCh. 8 - Prob. 14QCh. 8 - Prob. 15QCh. 8 - Prob. 16QCh. 8 - Prob. 17QCh. 8 - How does a company determine the amount of income...Ch. 8 - Prob. 19QCh. 8 - Prob. 20QCh. 8 - What type of segment information must companies...Ch. 8 - How would an annual bonus paid at year-end be...Ch. 8 - Which of the following does U.S. GAAP not consider...Ch. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - Prob. 5PCh. 8 - Which of the following is not necessarily true for...Ch. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Which of the following items is required to be...Ch. 8 - Prob. 11PCh. 8 - Prob. 12PCh. 8 - Which of the following information items with...Ch. 8 - Prob. 14PCh. 8 - In considering interim financial reporting, how...Ch. 8 - How should material seasonal variations in revenue...Ch. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 19PCh. 8 - Niceville Company pays property taxes of 100,000...Ch. 8 - Prob. 21PCh. 8 - Prob. 22PCh. 8 - Prob. 23PCh. 8 - Prob. 24PCh. 8 - Prob. 25PCh. 8 - Prob. 26PCh. 8 - Prob. 27PCh. 8 - Prob. 28PCh. 8 - Prob. 29PCh. 8 - Prob. 30PCh. 8 - Prob. 31PCh. 8 - Prob. 32PCh. 8 - Prob. 33PCh. 8 - Prob. 34PCh. 8 - Prob. 35PCh. 8 - Prob. 36PCh. 8 - Prob. 37PCh. 8 - Prob. 38PCh. 8 - Noventis Corporation prepared the following...Ch. 8 - Prob. 40PCh. 8 - Prob. 41PCh. 8 - Prob. 5DYSCh. 8 - ACCOUNTING STANDARDS CASE 1SEGMENT REPORTING...Ch. 8 - ACCOUNTING STANDARDS CASE 2INTERIM REPORTING...Ch. 8 - Prob. 8DYSCh. 8 - Prob. 9DYS
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