Question

Problem 8-7A Record contingencies (LO8-5)

The ink-jet printing division of Environmental Printing has grown tremendously in recent years. Assume the following transactions related to the ink-jet division occur during the year ended December 31, 2021.
  

1. Environmental Printing is being sued for $9.4 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible.

2. Environmental Printing is the plaintiff in an $7.4 million lawsuit filed against a competitor in the high-end color-printer market. Environmental Printing expects to win the case and be awarded between $4.9 and $7.4 million.

3. Environmental Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $340,000 and $740,000.

  
Required:
Record any amounts as a result of each of these contingencies. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not millions. For example, $5.5 million should be entered as 5,500,000.)

Record the contingent liability if needed.

Record the contingent gain if needed.

Record the contingent liability if needed.

Answer 1

Answer:

S.No	Particulars	Debit ($)	Credit ($)
a	No entry required
	Likelihood of payment is reasonably possible rather than probable. So no journal entry is required However full disclosure is required in note.
b	No entry required
	Contingent gains are not recorded until the gain is certain
c	Loss	340000
	Contingent Liabilities		340000
	Being should record loss and liability for minimum amount and also should disclose the range in notes.