Below Are Several Independent Items Listed for Which the Outcome

question 63

Essay

Below are several independent items listed for which the outcome of events is unknown at year-end, December 31, 2015.
a. Maldova Company had a barge that leaked oil into the waters surrounding Alaska. The company's legal counsel believes that the outcome may be unfavorable but has not been able to estimate the costs of the possible loss.
b. It is alleged by Maldova Company that Argo Company has infringed on its trademark, during a recent advertising campaign. Maldova is suing Argo and its legal experts believe that the suit will result in an award of $750,000 in Maldova's favor.
c. Maldova offers 2-year warranties on the equipment it sells and believes that 5% of its equipment will require warranty repairs.
d. A $35 coupon, good for one year is offered by Maldova during December. At December 31, approximately 10% of the coupons have been redeemed and it is estimated that there will be a total redemption rate of 45%.
e. Maldova Company has been sued by the federal government for EPA violations. The company's legal counsel believes that there will be an unfavorable verdict and has made an estimate of the probable loss
REQUIRED:
1. Identify which of the items a through e should be recorded at year-end.
2. Identify which of the items a through e should not be recorded but should be disclosed in the year-end financial statements.
a. Maldova Company had a barge that leaked oil into the waters surrounding Alaska. The company's legal counsel believes that the outcome may be unfavorable but has not been able to estimate the costs of the possible loss.
b. It is alleged by Maldova Company that Argo Company has infringed on its trademark, during a recent advertising campaign. Maldova is suing Argo and its legal experts believe that the suit will result in an award of $750,000 in Maldova's favor.
c. Maldova offers 2-year warranties on the equipment it sells and believes that 5% of its equipment will require warranty repairs.
d. A $35 coupon, good for one year is offered by Maldova during December. At December 31, approximately 10% of the coupons have been redeemed and it is estimated that there will be a total redemption rate of 45%.
e. Maldova Company has been sued by the federal government for EPA violations. The company's legal counsel believes that there will be an unfavorable verdict and has made an estimate of the probable loss
REQUIRED:

Apply the concept of categorical and quantitative data to real-world situations.

Recognize the ethical considerations and aims behind collecting data in different fields (health, education, consumer behavior).

Appreciate the relevance of accurately interpreting research results and statistics to avoid becoming misrepresented "statistics".

Identify and classify different types of data (categorical and quantitative).

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Definitions:

Percentage Of Sales

A method or analysis tool that expresses components of a financial statement as a percentage of total sales.

Variable Expense

Costs that fluctuate with the level of production or business activity, such as raw material costs and shipping fees.

Break-Even

Break-even is the point at which total revenues equal total costs, resulting in no net profit or loss, indicating the volume of sales needed to cover costs.

Fixed Expense

Fixed expenses are costs that do not change with the level of production or sales volume, such as rent or salaries.