Below Are Several Independent Items Listed for Which the Outcome

question 23

Essay

Below are several independent items listed for which the outcome of events is unknown at year-end,December 31,2012.
a.Margo 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 Margo Company that ABC Company has infringed on its trademark,during a recent advertising campaign.Margo is suing ABC and its legal experts believe that the suit will result in an award of $750,000 in Margo's favor.
c.Margo 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 Margo 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.Margo 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.

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