Exwella Pharmaceuticals, Inc. is involved in various lawsuits regarding product liability, commercial liability, and other matters that
Question:
1. Product liability lawsuit related to Nowaya, a pharmaceutical drug, in which claimants seek substantial damages. Exwella’s attorneys assess the likelihood of losing the lawsuit as reasonably possible at 60%. At the beginning of the year, the estimated loss ranged from $ 500,000 to $ 1,500,000. At the end of the year, the attorney’s assessment of the loss increased to a range between $ 750,000 and $ 2,000,000.
2. A personal injury lawsuit in which a claimant seeks substantial damages. Exwella’s attorneys assess the likelihood of losing the lawsuit as probable at 95%. At the beginning of the year, Exwella reported a contingent liability of $ 750,000 for the lawsuit. At the end of the year, the attorney’s assessment of the loss increased to a range between $ 900,000 and $ 3,000,000. NewPending Lawsuits.
3. A new product liability lawsuit was filed related to the drug Dontacit. Exwella’s attorneys assess the likelihood of losing the lawsuit as remote at 10%. The attorney’s assessment of the loss increased to a range between $ 10,000,000 and $ 15,000,000.
4. A new product liability lawsuit was filed related to the drug Noapproval. Exwella’s attorneys assess the likelihood of losing the lawsuit as probable. The attorney’s assessment of the loss increased to a range between $ 2,000,000 and $ 4,000,000.
Required
a. Explain how each of the lawsuits is accounted for under U. S. GAAP.
b. Prepare any journal entries required at the end of the year.
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Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
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