Question

In: Accounting

Gallardo Co. is involved in a lawsuit as a result of an accident that took place...

Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2017. The lawsuit was filed on November 1, 2017 and claims damages of $1,000,000. (a) At December 31, 2017, Gallardo's attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit? (b) Assume instead that a December 31, 2017, Gallardo's attorney feel it is probable that Gallardo will lose the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit? (c) Assume instead that at December 31, 2017, Gallardo's attorneys feel it is reasonably possible that Gallardo could lose the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit?

Solutions

Expert Solution

(a) At December 31, 2017, Gallardo's attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit?

Since the loss of lawsuit is remote that is it is unlikely to occur, the same need not be recorded and to be ignored.

(b) Assume instead that a December 31, 2017, Gallardo's attorney feel it is probable that Gallardo will lose the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit?

Because the attorney feels that Gallardo will lose the lawsuit that is the lawsuit is probable (likely to occur) hence it should be recorded in the books. The Lawsuit expense should be debited and estimated lawsuit liability to be credited on $1000000.

(c) Assume instead that at December 31, 2017, Gallardo's attorneys feel it is reasonably possible that Gallardo could lose the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit?

Because the lawsuit is reasonably possible that is could happen than it can just be disclosed in the notes of accounts of the accompanying Balance Sheet.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2017.
Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2017. The lawsuit was filed on November 1, 2017, and claims damages of $1,000,000.   Instructions (a) At December 31, 2017, Gallardo’s attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit? (b) Assume instead that at December 31, 2017, Gallardo’s attorneys feel it is probable that Gallardo will lose...
6.If you were involved in a multicar accident where tort law applied, a lawsuit between the...
6.If you were involved in a multicar accident where tort law applied, a lawsuit between the parties likely would result. The suit would be an attempt to place blame for the accident, thereby also placing financial responsibility for the losses incurred. Under the no-fault concept: Select one: a. the party who is driving under influence would have to bear all damages. b. each injured party would bear their injury costs, since the insurance company would not get involved to avoid...
What significant reforms took place as a result of the Sarbanes-Oxley Act of 2002? Why did...
What significant reforms took place as a result of the Sarbanes-Oxley Act of 2002? Why did these reforms take place? Who did these reforms affect? Regarding SOX: as a potential Public Accountant, what concerns do you have?
Assume Amazon is involved in a major lawsuit and the probable damages are estimated to be...
Assume Amazon is involved in a major lawsuit and the probable damages are estimated to be $2,000,000. A. Describe the effects damage estimates would have on the financial statements of a corporation and a partnership. B. How do disclosure requirements differ from a corporation to a partnership and what information is required? C. Are the shareholders at risk for any personal liability with the company set up as a corporation? Defend your response. D. If your company was set up...
Your cousin is involved in a Medical Lawsuit. He is the claimant of the case. You...
Your cousin is involved in a Medical Lawsuit. He is the claimant of the case. You were very suprised and you asked him to give you a summary of the problem. Your cousin mentioned the words “noneconomic damages”, “standard of care”, and “Medical Malpractice”. You are not sure what these terms mean so you decide to do some research. Research the three terms and provide specific “real world” examples of the application of these terms. You can define them first...
The Fitzgeralds (who have a PAP) are involved in an automobile accident that was not their...
The Fitzgeralds (who have a PAP) are involved in an automobile accident that was not their fault on their way home from a dinner party. Although they are unharmed, their car is disabled. The police recommend that they leave the car by the side of the road and take a taxi home. When the Fitzgeralds return to the scene of the accident, they find that their car has been stripped down to the chassis. The Fitzgeralds submit a claim to...
Reza is a 23-year-old male who was involved in a motor vehicle accident. After the accident,...
Reza is a 23-year-old male who was involved in a motor vehicle accident. After the accident, he told the paramedics he felt extreme pain under his rib cage. He was transported by ambulance to the hospital, and the attending physician determined Reza had ruptured his spleen during the accident. He was scheduled for emergency splenectomy. Due to the severity of the injury, Reza had to have “open surgery” to remove his spleen. The surgery was a success. Reza was given...
Reza is a 23-year-old male who was involved in a motor vehicle accident. After the accident,...
Reza is a 23-year-old male who was involved in a motor vehicle accident. After the accident, he told the paramedics he felt extreme pain under his rib cage. He was transported by ambulance to the hospital, and the attending physician determined Reza had ruptured his spleen during the accident. He was scheduled for emergency splenectomy. Due to the severity of the injury, Reza had to have “open surgery” to remove his spleen. The surgery was a success. Reza was given...
Reza is a 23-year-old male who was involved in a motor vehicle accident. After the accident,...
Reza is a 23-year-old male who was involved in a motor vehicle accident. After the accident, he told the paramedics he felt extreme pain under his rib cage. He was transported by ambulance to the hospital, and the attending physician determined Reza had ruptured his spleen during the accident. He was scheduled for emergency splenectomy. Due to the severity of the injury, Reza had to have “open surgery” to remove his spleen. The surgery was a success. Reza was given...
1a. PA Company is involved in a lawsuit brought by former employees. The employees are suing...
1a. PA Company is involved in a lawsuit brought by former employees. The employees are suing for a recovery of $350,000 for injury at work. The legal advisor is quite pessimistic about the lawsuit and believes that it is probable (more likely than not) that the company will lose the litigation and pay the full amount of the claim. Required: Discuss the proper accounting treatment, including any required disclosure, for PA Company regarding the above ongoing litigation (no journal entry...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT