On April 1, 2010, while shopping for new furniture for her home, a world-renowned pianist, Mia Thorne, tripped on an electrical cable on the showroom floor and broke her wrist. On June 10,
2010,Ms. Thorne sued the furniture store for $5 million. The case came to trial on September 13, 2010, and the court reached a decision on December 23, 2010, finding the store liable and awarding Ms. Thorne the sum of $1.5 million.
Dissatisfied with the first judgement, the furniture store appealed to a higher court on February 3, 2011. The appeal court heard the case beginning on July 18, 2011. On November 25,
2011,the store was again found liable. In this judgement, Ms. Thorne was awarded $2.5 million in damages; however, the furniture store was given three years to pay.
On January 15, 2012, the store negotiated a reduced amount with Ms. Thorne in return for immediate payment, and paid her $2 million in full settlement of the case.
Required:
Review the events in the case and identify the various dates on which a loss and a liability might be recognized. For each of these dates, refer to the criteria for contingent liability and full liability recognition and recommend whether disclosure through a note to the financial statements or a journal entry would be most appropriate, as well as the amount (if any) that should be reported. The company's yearend is December 31.