1) Post your choice of approach regarding recording/disclosing, as well as your reasoning and analysis for your choice (recorded, or recognized as a liability; disclosed, in the notes to the financial statements; and not recorded or disclosed.)

Scenario a: A former employee claimed Majestic Industries Co. had discriminated against her during her employment there. Damages of $1,500,000 were being claimed. The company believes the claims are without merit and will be defending their position, although they do not expect an adverse outcome.

Scenario b: A company is the plaintiff in a $600,000 lawsuit filed against A Local Farm for failing to deliver on contracts for produce. The suit is in final appeal. Legal counsel advises that it is probable that the company will prevail and will be awarded $300,000 (considered a material amount).

Scenario c: On December 18 Craft Foods distributed coupons in newspaper inserts offering 50 cents off the purchase price of one of its cereal brands when coupons are presented to retailers. Retailers are reimbursed by Craft for the face amount of coupons plus 10% for handling. Previous experience indicates that 20% of coupons will be redeemed. Coupons issued had a total face amount of $1,000,000.

2. Just like question one, but the situation below has been provided with an opinion. What do you think about the opinion of the situation below? And why you would agree or disagree with this option?

Scenario: A former employee filed a lawsuit against a company alleging age discrimination and asking for damages of $750,000. At December 31 of that year, their attorney indicated that the likelihood of losing the lawsuit was possible but not probable. On March 5 of the following year, the company agreed to pay the former employee $125,000 in return for withdrawing the lawsuit.

=> Option: This situation scenario will be recorded. As the loss- $1,25,000 and the liability is -$1,25,000

Answer rating: 100% (QA)

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