Question: Faz Corporation is a manufacturer of paints and specialty coatings

Faz Corporation is a manufacturer of paints and specialty coatings. In March 2014, Beck Inc. filed a lawsuit against Faz Corporation for alleged patent infringement, claiming $1.l million in damages. Faz's lawyer disputed the claim, but in December 2014, Faz's lawyer informed management that Faz will likely lose the dispute and have to pay between $900,000 and $1.1 million. Dissatisfied with this estimate and its potential impact on 2014 net income, Faz; management sought a second legal opinion in December 2014. The lawyer who provided the second opinion suggested that Faz will likely have to pay between $400,000 and $600,000. In its financial statements for the year ended December 31,2014, Fazrecorded a provision for a loss on the lawsuit and a liability in the amount of $500,000. Answer the following questions based only on the information provided.
(a) Does Faz have high-quality earnings?
(b) Will the earnings reported by Faz be discounted in the capital markets?

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  • CreatedSeptember 18, 2015
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