The following are six independent situations. The underlined entity is the reporting entity. 

1. The Supreme Court of Canada ordered a supplier to pay Pangay Strobes Inc. $100,000 for breach of contract. 

2. Ynot Pharmaceuticals Inc. sued Xbot Agencies Ltd. for $20 million alleging patent infringement. While there may be some substance to Ynot’s assertion, Xbot’s legal counsel estimates that Ynot’s likelihood of success is about 20%. 

3. Environment Canada sued Canless Isotopes Ltd. for $10 million seeking to recover the costs of cleaning up Canless’s accidental discharge of radioactive materials. Canless acknowledges liability but is disputing the amount, claiming that the actual costs are in the range of $5 million to $6 million. Canless’s $10 million environmental insurance policy includes a $1 million deductible clause. 

4. Calfed Cattle Inc. sued Toropost Feed Ltd. for $2 million alleging breach of contract. Toropost’s legal counsel estimates that Calfed’s likelihood of success is about 70%. Based on its experience with cases of this nature, the law firm estimates, if successful, that the litigants will be awarded $1,000,000 to $1,200,000, with all payouts in this range being equally likely.

5. Helen Threlfall broke her leg when she tripped on an uneven floor surface in Montpearson Co.’s office. On the advice of legal counsel, Montpearson has offered Threlfall $100,000 to settle her $300,000 lawsuit. It is unknown whether Threlfall will accept the settlement offer. Montpearson’s legal counsel estimates that Threlfall has a 90% probability of success, and that if successful, she will be awarded $200,000. 

6. The courts ordered a competitor to pay $500,000 to Winfland Boxes Corp. for patent infringement. The competitor’s legal counsel indicated that the company will probably appeal the amount of the award. 

Required

a. For each of the six situations described above, and assuming that the company reports its financial results in accordance with IFRS, indicate whether the appropriate accounting treatment is to: 

A. recognize an asset or liability. 

B. disclose the details of the contingency in the notes to the financial statements. 

C. neither provide for the item nor disclose the circumstances in the notes to the financial statements. 

b. For each situation that requires the recognition of an asset or liability, record the journal entry.