A lawsuit has been filed against See-Me-Here, Inc., a manufacturer of video post cards, by See-Me-Wherever, another manufacturer of video post cards. The suit alleges patent right infringements by See-Me-Here and asks for compensatory damages. For the following possible situations, determine whether See-Me-Here should report the information concerning the lawsuit as a liability on the balance sheet, and if so, how much; disclose it in a note; or do nothing. Give reasons for your answers.
(a) The suit hasn’t been filed, but See-Me-Here’s legal counsel has informed management that an unintentional patent infringement has occurred.
(b) See-Me-Here’s legal counsel believes an out-of-court settlement is probable and will cost See-Me-Here approximately $700,000.
(c) See-Me-Here’s legal counsel believes it is probable that the case will result in an undeterminable loss to See-Me-Here.
(d) See-Me-Here’s legal counsel is convinced that the suit will result in a loss to See-Me-Here but isn’t sure of the dollar damages.
(e) See-Me-Here’s legal counsel believes there is a remote chance for a loss to occur.
(f) See-Me-Here’s legal counsel believes it is reasonably possible that the case will result in a $2,800,000 loss to See-Me-Here.