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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Gain Contingency On December 31, 2019, Braino Tech Inc. learned that its competitor had introduced a product using an accessory to which Braino has exclusive patent rights. Braino planned to file suit and its attorneys estimated that Braino should recover at least $500,000. Braino’s December 31, 2019, year-end financial statements were issued March 2, 2020. At that date, Braino still planned to file suit, even though it had not yet done so.

Required:

Next Level Discuss the accounting treatment in regard to the 2019 financial statements of Braino Tech called for by GAAP concerning the described circumstances. Be sure to conceptually justify this treatment.

To determine

Discuss the accounting treatment for the given situation of Incorporation BT for the year 2019.

Explanation

Contingent liability:

The contingent liability is not treated as a liability of the company on the date of the balance sheet but it may become liabilities in the future date on the happening of an ambiguous event.

  • The given situation of Incorporation BT fits the desires of a gain contingency.
  • The gain contingencies are disclosed in the notes to the financial statements...

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