Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.

Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.

. Below are three independent situations.

a. In August, 2012 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Crusher Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.

b. A suit for breach of contract seeking damages of $2,400,000 was filed by an

author against Parker Co. on October 4, 2012. Parker’s legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $600,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount.

c. Rose is involved in a pending court case. Rose’s lawyers believe it is probable that Rose will be awarded damages of $1,000,000.

Instructions

Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.


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