Note Disclosure of Legal Matters

question 55

Essay

Note Disclosure of Legal Matters

Use the note disclosure of legal matters below to answer the questions that follow.

Note 13—Legal Matters

On December 14, 2017, the Company was served with a class action complaint filed in federal court in Burlington, Vermont. The complaint, captioned John Doe vs. The Company was filed by a Company’s shareholder on behalf of himself and purportedly on behalf of all other Company’s shareholders who purchased the common stock of the Company during the period from March 25, 2016, through December 19, 2016. Plaintiff alleges that the Company violated the federal securities laws by making, in 2016, untrue statements of material facts and omitting to state material facts primarily concerning the Company's construction and start-up of its new manufacturing facility. Also named as defendants in the Complaint are certain present and former officers and directors of the Company. Plaintiff is seeking an unspecified amount of monetary damages.

While this action is in its preliminary stages, management believes, based on an initial review, the allegations made in the lawsuit are without merit and the Company intends to defend the lawsuit vigorously.

-Review the note disclosure of legal matters.

Required
(1)What type of liability does this lawsuit typify?

(2)In your opinion,should the company prepare a journal entry in 2017 to record a liability for this lawsuit? Why or why not?

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Definitions:

Business Venture

An entrepreneurial enterprise or company initiated by an individual or a group of people to seek profit by providing products or services.

Executive Summary

A condensed version of a document, report, or proposal that highlights its main points, intended to give readers a quick overview of its content.

Intangibles

Non-physical assets such as intellectual property, brands, or goodwill that have value for an organization.

Joint Ventures

A strategic alliance where two or more parties come together to undertake a specific business project or activity while sharing risks and rewards.