Question

The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus’s fiscal year ends on December 31. Financial statements are issued in March 2019. Erismus prepares its financial 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 management believes the company has a slightly worse than 50/50 chance of eventually prevailing in court, and that if it loses, the judgment will be $1,190,000.
2. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses, management believes that damages could fall anywhere in the range of $2,140,000 to $4,280,000, with any damage in that range equally likely.
3. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses, management believes that damages will eventually be $5,780,000, with a present value of $4,046,000.
4. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is probable that the company eventually will prevail in court, and that if it prevails, the judgment will be $1,190,000.
5. Erismus is a plaintiff in a lawsuit. Erismus’s management believes it is virtually certain that the company eventually will prevail in court, and that if it prevails, the judgment will be $630,000.

Answer 1

1) This will be disclosed in the notes to disclosure but it will be considered as liability and loss will be considered Reasonably Possible. It is considered Not Accrued.

2) SInce the Management are probable that company will lose in court, so a Liability of 2,140,000 will be recorded .

As per US GAAP Low end of range of equally likely outcomes and disclosure note of lawsuit.

3)Since the Loss is probable the liability of 5,780,000 is recorded , present value is not considered. Disclosure note of lawsuit need to be done.

4)Since its a Gain , so Disclosure note given with all details

5)Since its a Gain , so Disclosure note given with all details