Question: E9-22A. (Learning Objective 1: Reporting a contingent liability) Rupert Security Systems revenues for 20X0 totaled $7.3 million. As with most companies, Rupert is a defendant

E9-22A. (Learning Objective 1: Reporting a contingent liability) Rupert Security Systems’

revenues for 20X0 totaled $7.3 million. As with most companies, Rupert is a defendant in lawsuits related to its products. Note 14 of the Rupert Annual Report for 20X0 explains the company’s policy on legal proceedings, stating that they will accrue for amounts related to legal matters if liability is probable and if it is reasonable to estimate an amount.

Requirements 1. Suppose Rupert’s lawyers believe that a significant legal judgment against the company is reasonably possible. How should Rupert report this situation in its financial statements?

2. Suppose Rupert’s lawyers believe it is probable that a $1.8 million judgment will be rendered against the company. Report this situation in Rupert’s financial statements. Journalize any entry requirements by IFRS. Explanations are not required.

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