The following selected circumstances relate to pending lawsuitsfor Erismus, Inc. Erismusâs fiscal year ends on December 31.Financial statements are issued in March 2017. Erismus prepares itsfinancial statements according to U.S. GAAP
Required: Indicate the amount Erismus would record as an asset, liability,or not accrued in the following circumstances.
1. Erismus is defending against a lawsuit. Erismus's managementbelieves the company has a slightly worse than 50/50 chance ofeventually prevailing in court, and that if it loses, the judgmentwill be $1,000,000.
2. Erismus is defending against a lawsuit. Erismus's managementbelieves it is probable that the company will lose in court. If itloses, management believes that damages could fall anywhere in therange of $2,000,000 to $4,000,000, with any damage in that rangeequally likely.
3. Erismus is defending against a lawsuit. Erismus's managementbelieves it is probable that the company will lose in court. If itloses, management believes that damages will eventually be$5,000,000, with a present value of $3,500,000.
4. Erismus is a plaintiff in a lawsuit. Erismus's managementbelieves it is probable that the company eventually will prevail incourt, and that if it prevails, the judgment will be$1,000,000.
5. Erismus is a plaintiff in a lawsuit. Erismusâs managementbelieves it is virtually certain that the company eventually willprevail in court, and that if it prevails, the judgment will be$500,000.
| The following selected circumstances relate to pending lawsuitsfor Erismus, Inc. Erismusâs fiscal year ends on December 31.Financial statements are issued in March 2017. Erismus prepares itsfinancial statements according to U.S. GAAP
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Related questions
Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Easternâs fiscal year ends December 31, and the 2016 financial statements are issued on March 15, 2017.
| a. | Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2017, judgment was rendered against Eastern in the amount of $119 million plus interest, a total of $134 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. |
| b. | In November 2015, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2017, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $152 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company. |
| c. | Eastern is the plaintiff in a $212 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $120 million. |
| d. | At March 15, 2017, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $45 million are reasonably possible. Prepare the appropriate journal entries for these situations. 1. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2017, judgment was rendered against Eastern in the amount of $119 million plus interest, a total of $134 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. 2.In November 2015, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2017, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $152,000,000 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company. 3.Eastern is the plaintiff in a $212 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $120 million. 4.At March 15, 2017, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $45 million are reasonably possible. |
| Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Easternâs fiscal year ends December 31, and the 2016 financial statements are issued on March 15, 2017. |
| a. | Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2017, judgment was rendered against Eastern in the amount of $117 million plus interest, a total of $132 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. |
| b. | In November 2015, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2017, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $150 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company. |
| c. | Eastern is the plaintiff in a $210 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $110 million. |
| d. | At March 15, 2017, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $43 million are reasonably possible. |
| Required: | |
| 2-a | Prepare the appropriate journal entries for these situations. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) a) b) c) d) |
