Question

the following selected circumstances related to pending lawsuits for Erismus, Inc. Erismus's fiscal year ends on December 31st. Financial statements are issued on March 2017. Erismus prepares its financial statements according to us gaap.

indicate the amount of asset or liability that Erismus would record and explain your answer.

1. Erismus is defending against a lawsuit. Erismus's management believes the company has a slightly worse than 50-50 chance eventually prevailing in court and that if it loses the judgement will be $1000000.
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 million dollars to four million dollars 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 the damages will eventually be $5000000 with the present value of 3500000 dollars.
4. Erismus is a plaintiff in a lawsuit. Erismus management believes it is probable that the company eventually will prevail in court, and that if it prevails the judgement will be $1000000.
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 reveals the judgment will be $500,000.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
1.	Under US GAAP, "Probable" means likelihood of substantially more than "more likely than not".
	Hence, Erismus would not recognize liability, rather a disclosure will be provided.
2.	A liability of $2 million will be recognized as there is possibility of losing case in court and
	under US GAAP, low end of likely amount needs to be recognized.
	Along with that, disclosure note to be given
3.	A liability of $5 million will be recognized as there is possibility of losing case in court and
	under US GAAP, discount factor is not considered.
	Along with that, disclosure note to be given
4.	This is gain contingency which is not required to accrued under US GAAP
	Hence, Erismus would not recognize liability, rather a disclosure will be provided.
5.	This is gain contingency which is not required to accrued under US GAAP
	Hence, Erismus would not recognize liability, rather a disclosure will be provided.