Corporate Financial Accounting
14th Edition
ISBN: 9781305653535
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 10, Problem 10.3TIF
To determine
To draft: A Memo to the President of Company WBM, explaining the reporting of effect of uncertain outcome of the lawsuit
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
WBM Motorworks is a manufacturer of high-end touring and off-road motorcycles. On November 30, the company was sued by a customer who was injured when the front shock absorber on the WBM Series 3 motorcycle cracked during use. The company conducted a preliminary investigation into the matter during December and found evidence of amanufacturing defect in the shock absorber. While it is uncertain whether the manufacturing defect is the source of the product failure, the company has voluntarily recalled the front shock absorbers on the Series 3 motorcycles. The company is uncertain how the lawsuit will be resolved. Similar lawsuits against other manufacturers have been settledfor approximately $2,000,000.Write a brief memo to the president of WBM Motorworks, U. D. Mach III,discussing how the lawsuit might be reported in the financial statements.
A digital watch bought from TPPL had a short circuit while the customer was doing work under the sun. This resulted in minor burns and injury to the customer's wrist. The customer sued the company for $10,000 as compensation. As at 31 December 20X1, TPPL's lawyer believed that it would be more than likely that the company would lose the court case against the customer. As the short circuit was very likely due to a manufacturing defect, TPPL also made a corresponding claim against the manufacturer of the digital watch for $8,000. The company's lawyer believed that there would be a 70% chance that the counter claim against the manufacturer was likely to succeed. Explain and discuss how TPPL should treat these two legal claims in its financial statements for the year ended 31 December 20X1 under the applicable SFRSs.
A wonderland tents and furniture LLC is involved in supplying tents and furniture items to customers for conducting events and celebrations. The company received a claim from customer for OMR. 35,000 as damages because some furniture were not delivered in time for a graduation ceremony. The company admits the delay but disputes the amount of the claim pointing out that alternative furniture arrangement for the event cost no more than OMR. 8,000. How would you advise the wonderland tents and furniture company to treat the claim when finalizing the financial statements for the year.
a- Account for the best estimate as liability
b- Ignore the claim
c- Record a liability of OMR. 35,000
d- Record a liability of OMR. 8,000
Chapter 10 Solutions
Corporate Financial Accounting
Ch. 10 - Does a discounted note payable provide credit...Ch. 10 - Employees are subject to taxes withheld from their...Ch. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - To match revenues and expenses properly, should...Ch. 10 - Prob. 7DQCh. 10 - Installment notes require equal periodic payments....Ch. 10 - When should the liability associated with a...Ch. 10 - Prob. 10DQ
Ch. 10 - Proceeds from notes payable On January 26, Nyree...Ch. 10 - Prob. 10.2BECh. 10 - Journalize period payroll The payroll register of...Ch. 10 - Prob. 10.4BECh. 10 - Prob. 10.5BECh. 10 - Journalizing installment notes On the first day of...Ch. 10 - Prob. 10.7BECh. 10 - Current liabilities Bon Nebo Co. sold 25,000...Ch. 10 - Entries for notes payable Bennett Enterprises...Ch. 10 - Evaluating alternative notes A borrower has two...Ch. 10 - Entries for notes payable A business issued a...Ch. 10 - Entries for discounted note payable A business...Ch. 10 - Fixed asset purchases with note On June 30,...Ch. 10 - Prob. 10.7EXCh. 10 - Calculate payroll An employee earns 44 per hour...Ch. 10 - Prob. 10.9EXCh. 10 - Summary payroll data In the following summary of...Ch. 10 - Payroll tax entries According to a summary of the...Ch. 10 - Payroll entries The payroll register for D. Salah...Ch. 10 - Prob. 10.13EXCh. 10 - Prob. 10.14EXCh. 10 - Prob. 10.15EXCh. 10 - Accrued vacation pay A business provides its...Ch. 10 - Prob. 10.17EXCh. 10 - Prob. 10.18EXCh. 10 - Entries for installment note transactions On the...Ch. 10 - Entries for installment note transactions On...Ch. 10 - Entries for installment note transactions On...Ch. 10 - Prob. 10.22EXCh. 10 - Prob. 10.23EXCh. 10 - Prob. 10.24EXCh. 10 - Liability transactions The following items were...Ch. 10 - Entries for payroll and payroll taxes The...Ch. 10 - Wage and tax statement data on employer FICA tax...Ch. 10 - Prob. 10.4APRCh. 10 - Payroll accounts and year-end entries The...Ch. 10 - Prob. 10.1BPRCh. 10 - Prob. 10.2BPRCh. 10 - Wage and tax statement data and employer FICA tax...Ch. 10 - Prob. 10.4BPRCh. 10 - Payroll accounts and year-end entries The...Ch. 10 - Prob. 3COPCh. 10 - Prob. 10.1ADMCh. 10 - Prob. 10.2ADMCh. 10 - Neiman Marcus and Kohls: Short-term liquidity...Ch. 10 - Cabelas and Dicks Sporting Goods: Short-term...Ch. 10 - Ethics in Action Tonya Latirno is a staff...Ch. 10 - Prob. 10.3TIF
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Decorative Concrete produces a concrete overlay for residential and commercial concrete flooring. Customers have complained that one of the products results in excessive cracking. The likelihood the company will incur a loss on this product is probable and the amount of the loss is estimated to be somewhere between $17 and $5 million Required: 1. Should this contingent liability be reported, disclosed in a note only, or both? 2. What loss, if any, should Decorative Concrete report in its income statement? 3. What liability, if any, should Decorative Concrete report in its balance sheet? 4. What journal entry, if any, should be recorded? Complete this question by entering your answers in the tabs below. Requidad 1 Required 2 Required 3 Required 4 Should this contingent liability be reported, disclosed in a note only, or both? Should this contingent liability be reported, disclosed in a note only, or both? Required t Required 2 >arrow_forwardWalmart is suing Elon Musk’s electric vehicle and clean energy company after Tesla solar panels atop seven of the retailer’s stores allegedly caught fire, according a court filing. The Walmart suit alleges breach of contract, gross negligence and failure to live up to industry standards. Walmart is asking Tesla to remove solar panels from more than 240 Walmart locations where they have been installed, and to pay damages related to all the fires Walmart says that Tesla caused. The Walmart suit, filed in the state of New York, alleges that: “As of November 2018, no fewer than seven Walmart stores had experienced fires due to Tesla’s solar systems - including the four fires described above and three others that had occurred earlier.” The filing details evacuations, damaged property and inventory. Tesla’s stock dropped more than 1% after hours on the news. Walmart claimed, among myriad complaints, that “Tesla routinely deployed individuals to inspect the solar systems who lacked basic…arrow_forwardPeleton experienced a product recall on their treadmills. The company is currently in the middle of a lawsuit. It is probable that the company will lose the lawsuit due to injuries sustained from the treadmill use. The company cannot reasonably estimate the amount of their future obligation under the lawsuit. How should the company treat the lawsuit in their financial statements? Record as a liability on the balance sheet Stop selling more treadmills Disclose in the notes to the financial statements Ignore, not enough information is givenarrow_forward
- Household Solutions manufactures kitchen storage products. During the year, the company became aware of potential costs due to (1) a recently filed lawsuit for patent infringement for which the probability of loss is remote and damages can be reasonably estimated, (2) another recently filed lawsuit for food contamination by the plastics used in Household Solutions’ products for which a loss is probable but the amount of loss cannot be reasonably estimated, and (3) a new product warranty that is probable and can be reasonably estimated. Which, if any, of these costs should be accrued?arrow_forwardOn March 2015, Agency A is taking legal action against its competitor for patent infringement relating to a patent that had been granted to the agency on one of its products. The outcome of the case is uncertain. However, it is probable that the court will order the competitor to pay damages to the entity. Use facts given in No. 1, but assumes that on June 2015 the Chief Legal Counsel of Agency A informs the management that it is now virtually certain that the court will order the competitor to pay damages to the entity. State whether a contingent liability or contingent asset exists. Explain your answers by stating the criteria of your answers below.arrow_forwardCaplan Pharma, Inc., recently was sued by a competitor for possible infringement of the competitor’s patent on a top-selling flu vaccine. The plaintiff is suing for damages of $15 million. Caplan's CFO has discussed the case with legal counsel, who believes it is possible that Caplan will not be able to successfully defend the lawsuit. The CFO knows that current U.S. accounting guidelines require that come gencies (such as lawsuits) must be disclosed in the annual report when a loss is possible. However, she is unsure whether this rule must be applied in the preparation of interim financial statements. She also knows that disclosure is necessary only if the amount is material, but she is unsure whether materiality should be assessed in relation to results for the interim period or for the entire year. Required Search current U.S. accounting standards to determine whether contingencies are required to be disclosed in interim reports, and, if so, how materiality is to be determined.…arrow_forward
- Production at the Paint Company’s factory was halted for one day when a truck carrying dye used in the production process overturned in the Rio Bobre River causing the contamination to the water supply system in the area. The Environmental Agency is currently considering whether the release of dye was in breach of environmental legislation. The company’s insurers have not yet commented on the event. Assume that the date is now 20 December 2019, the financial statements and the audit report have just been signed and the report is to be presented to the Board of Directors on 10 January 2020. The Environmental Agency has issued a report stating that Paint Company is in breach of environmental legislation and a fine of $10.5M will now be levied on the company. The amount is material to the financial statements. Required: Explain the additional audit work the auditor should carry out in respect of this fine. The auditors are considering to modify their audit opinion. Do you agree or…arrow_forwardThe Stone River Textile Mill was inspected by OSHA and found to be in violation of a number of safety regulations. The OSHA inspectors ordered the mill to alter some existing machinery to make it safer (e.g., add some safety guards); purchase some new machinery to replace older, dangerous machinery; and relocate some machinery to make safer passages and unobstructed entrances and exits. OSHA gave the mill only 35 weeks to make the changes; if the changes were not made by then, the mill would be fined $300,000. The mill determined the activities that would have to be completed and then estimated the indicated activity times, as shown in the table below. Activity Description Immediate Predecessor(s) Time Estimates (Weeks) Optimistic Most Likely Pessimistic a m b A Order new machinery --- 1 2 3 B Plan new physical plant --- 2 5 8 C Determine safety changes in existing machinery --- 1 3 5 D Receive equipment A 4 10 25 E Hire new employees A 3 7 12 F Make plant…arrow_forwardDavid H. Brooks, a university graduate with an accounting degree and the former CEO of DHBIndustries, Inc., was charged in October 2007 with accounting and securities fraud for failing toreport the company’s inventory at the lower of cost or market. From 2001 to 2005, DHB purchasedlarge quantities of a material called Zylon and used it in making bulletproof vests that were sold tothe U.S. military and local law enforcement agencies. During this same period, DHB learned thatZylon deteriorated rapidly when exposed to light, heat, and body perspiration. DHB knew that oneof its competitors, Second Chance Body Armor, had stopped using Zylon in its vests and, eventually, discontinued its business because customer demand for its Zylon-based vests had evaporated.DHB did not write down its own inventory of Zylon and Zylon-based vests because it had a largecontract to supply the U.S. military with bulletproof vests. In its financial statements for the yearended December 31, 2004, DHB reported…arrow_forward
- A writ was lodged in the Supreme Court in the week after year-end claiming damages forillness allegedly caused by chemicals used at a subsidiary company’s manufacturing plant inthe 1990s. This is the tenth such writ lodged, and the client has denied responsibility in allcases because it was unreasonable to believe at that time that these chemicals had adversehealth effects. The claimant has new scientific evidence that counters this defence. Which subsequent event is this and what is the treatment for this?arrow_forwardMercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work such as removal of asbestos insulation around heating pipes in older homes and nonroutine work such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to determine the bid price. Since our average cost is only $2.58 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is…arrow_forwardFalling Boxes On January 31, an improperly stacked box fell from the top shelf of a warehouse, injuring an employ- ee. The employee was hit, fell, and broke his wrist. Your company self-insures for the risk of such incidents rather than paying an insurance company to absorb the risk of such claims. The employee has been treated for his injuries and has retained a lawyer. The lawyer has not yet filed a formal claim with the company. According to your internal risk management team, the amount of claim likely to be sought by the employee could range between $50,000 and $300,000. Is your company required to record a liability for this incident? When, and for what amount? What dis- closures are required, if any? oludinarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
Business Its Legal Ethical & Global Environment
Accounting
ISBN:9781305224414
Author:JENNINGS
Publisher:Cengage
Current assets and current liabilities; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Jw4TaiP42P4;License: Standard youtube license