Thanks for the help. requirement I is maue. 10A-4. SLIPPERYFEET SHOE Company has
ID: 2572995 • Letter: T
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Thanks for the help.
requirement I is maue. 10A-4. SLIPPERYFEET SHOE Company has been sued by a customer who fell down while wearing a pair of the company's product at the local ice rink. The lawsuit asks for $4,000,000 in unspecified damages Required: show the appropriate journal entry and describe any footnote under the following three conditions. 1. SLIPPERYFEET's attorney thinks that the possibility of losing this case is remote since the customer was well-known to be accident prone. 2. SLIPPERYFEET's attorney thinks that it is reasonably possible that the company will have to pay something to settle the case and that this is a good idea since it will eliminate the negative publicity 3. SLIPPERYFEET's attorney thinks it is likely that the company will have to pay between $450,000 and $900,000 as a result of the case. 1 Now in its approximately 55th year, La Tomatina is Bunol's answer to LaExplanation / Answer
1. In this case, the attorney thinks that the possibility of losing the case is remote. Thus, the accountant does not need to report anything. We follow principle of conservatism, thus no future gains should be reported.
2. In this case, the attorney thinks that it is reasonably probable that the company will have to pay something to settle the case, but the amount is missing. Thus, the accountant only needs to make a disclosure regarding this case in the notes to accounts accompanying the financial statement of the company.
Foot note : It is reasonably probable that the company will have to pay a certain amount to settle a lawsuit which asks for $4000000 in unspecified damages. The company cannot estimate the amount required to settle the case.
3. In the given case, the attorney thinks that it is likely that the company will have to pay between $450000 and $900000 as a result of the case. The loss is probable in this case, which means future event is likely to occur. The company estimated a range of possible amounts , then we should record that amount in the range that appears to be a better estimate than any other amount. If no amount is better then we should record the lowest amount in the range.
In this case, it is assumed that no amount is better, thus we will record the lowest amount, that is $450000.
Loss from lawsuit (estimated) Dr. $450000
To Estimated liability from lawsuit $450000
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