The Following Facts Apply to TinyPart Toy Company's Pending Litigation

question 35

Essay

The following facts apply to TinyPart Toy Company's pending litigation as of December 31, 2018:

a. TinyPart is defending against a lawsuit and believes there is a 51% chance it will lose in court. If it loses, TinyPart estimates that damages will be $100,000.
b. TinyPart is defending against another lawsuit for which management believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates damages will fall somewhere in the range of $30,000 to $50,000, with each amount in that range equally likely to occur.
c. TinyPart is defending against another lawsuit that is identical to item (b), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $15,000 and $25,000. TinyPart's management believes the effects of time value of money on these amounts are material, but also believes the timing of these amounts is uncertain.
d. TinyPart is defending against a fourth lawsuit and believes there is only a 25% chance it will lose in court. If TinyPart loses, it believes damages will fall somewhere in the range of $35,000 to $40,000, with each amount in that range equally likely to occur.

-Indicate how TinyPart would disclose or account for the lawsuit described in part (d) under U.S. GAAP and under IFRS in the financial statements for the year ended December 31, 2018.

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Definitions:

Units-of-Activity

A depreciation method that allocates expense based on the actual usage or production levels of an asset.

Double-Declining-Balance Method

A depreciation technique that accelerates the rate at which an asset loses value, doubling the rate of the straight-line depreciation method.

Straight-Line Method

A depreciation technique that allocates an equal amount of depreciation to each year of the asset's useful life.

Depreciation

The planned distribution of the costs associated with a tangible asset over its usage period.