Mapplebeck Company Ltd. is gathering evidence to support an accrual for legal claims. Three lawsuits are outstanding:

Question:

Mapplebeck Company Ltd. is gathering evidence to support an accrual for legal claims. Three lawsuits are outstanding: 

Claim 1 is a lawsuit from an employee for $750,000. According to the legal team, there is a 10% chance that it will have to be paid in full and a 90% chance that it will be dismissed.
Claim 2 is a lawsuit from a supplier for $5,000,000 for breach of contract. According to the legal team, there is a 70% chance that it will have to be paid out in full and a 30% chance that it will be dismissed.
Claim 3 is a lawsuit from a customer for $1,600,000. According to the legal team, there is only a 30% chance that it will be dismissed in court. Accordingly, the company has made a settlement offer of $1,000,000 to the plaintiff, but the plaintiff has not yet responded to the settlement offer. The legal team believes there is a 40% chance the settlement will be accepted. If it is not accepted, the action will go to court, with a 30% chance of dismissal and a 70% chance of an $1,600,000 payout.


Required:
For each case, indicate the amount that should be recorded as a liability for the lawsuit. Assume that the payment period is relatively short so that discounting is not needed.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Intermediate Accounting Volume 2

ISBN: 9781260881240

8th Edition

Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel

Question Posted: