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:

Vehicle

In marketing, a vehicle refers to the medium or channel used to transmit an advertising message to its intended audience, such as television, radio, or online platforms.

Single-Zone Pricing

A pricing strategy where a seller charges the same price for a product or service, regardless of where the buyer is located.

FOB Origin Pricing

A term used in shipping indicating that the buyer takes responsibility for shipping costs and risk of loss from the seller’s location.

Freight-Absorption Pricing

A pricing strategy where the seller absorbs all or part of the freight charges to encourage business in competitive markets or remote locations.