Diamond Security Systems revenues for 2018 totaled $27.5 million. As with most companies, Diamond is a defendant
Question:
Diamond Security Systems’ revenues for 2018 totaled $27.5 million. As with most companies, Diamond is a defendant in lawsuits related to its products. Note 14 of the Diamond annual report for 2018 reported the following:
14. Contingencies
The company is involved in various legal proceedings.... It is the Company’s policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount is reasonably estimable.
Requirements
1. Suppose Diamond’s lawyers believe that a significant legal judgment against the company is reasonably possible. How should Diamond report this situation in its financial statements?
2. Suppose Diamond’s lawyers believe it is probable that a $2.8 million judgment will be rendered against the company. In general terms, how would this situation be reported in Diamond’s financial statements (using U.S. GAAP)?
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Req 1 Diamond Security Systems should report this situation in a note to the financial state...View the full answer
Financial Accounting
ISBN: 978-0134725987
12th edition
Authors: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
