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 th

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 th

2. 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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