Consider the Following Independent Situations

question 47

Essay

Consider the following independent situations. The underlined entity is the reporting entity.
1. Call Cattle Inc. sued Nutrient Feed Ltd. for $10 million alleging breach of contract. Nutrient's legal counsel estimates that Call's likelihood of success is about 80%. Based on its experience with cases of this nature,the law firm estimates that,if successful,the litigants will be awarded $8,800,000 to $9,000,000,with all payouts in this range being equally likely.
2. Deana Finnamore broke her leg when she tripped on an uneven floor surface in Groton Co.'s office. On the advice of legal counsel,Groton has offered Finnamore $140,000 to settle her $275,000 lawsuit. It is unknown whether Finnamore will accept the settlement offer. Groton's legal counsel estimates that Finnamore has a 90% probability of success,and that if successful,she will be awarded $230,000.
3. The courts ordered a competitor to pay $1,000,000 to Ferbert and Finn Corp. for patent infringement. The competitor's legal counsel indicated that the company will probably appeal the amount of the award.
Requirement:
a. For each of the situations,indicate whether the appropriate accounting treatment is to:
A. Recogrize an asset or lizbility.
B. Disclose the details of the contingency in the notes to the financial statements.
C. Neither provide for the item nor disclose the circumstances in the notes to the firancial statements b. For each situation that requires the recognition of an asset or liability,record the journal entry.

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Definitions:

Embargoes

Government-imposed restrictions on trade with a particular country or the exchange of specific goods, often used as a political tool.

Civil Law

A legal system originating in Europe, characterized by comprehensive codified laws, in contrast to the common law system.

Legislative Branch

One of the three branches of government responsible for creating and enacting laws, typically consisting of a parliament or congress.

Judicial Branch

The branch of government responsible for interpreting the laws and administering justice through courts.