ABC Grocers, Inc.

Contingencies

$12/31/16$

Contingencies

Loss Contingency

$12/31/16$ ABC Grocers is being sued by an employee who slipped on spilled milk and broke his back.

ABC's lawyers expect to lose the lawsuit and estimates the loss to be between $$200,000$ and $$500,000$

with no one outcome being assessed as more likely than the other.

Required: Would ABC Grocers recognize a contingent liability under U$.$S$.$ GAAP and IFRS? If so$,$ how

much? Record necessary adjusting journal entries in their own adjusting journal entry workpaper

and also in the respective trial balance worksheet for $12/31/16.$

Instructor Note: The following exercise examines gain contingency differences between U$.$S$.$ GAAP and IFRS.

Spiceland $6$e does not discuss gain contingencies under IFRS, so an instructor who assigns this exercise will

want to inform students that gain contingencies are accrued under IFRS if they are virtually certain to occur.$$

Gain Contingency

$12/31/16$ ABC Grocers had a delivery truck drive through the side of one of their stores causing major

damages. The delivery truck is owned by an independent party and ABC Grocers is suing the trucking

company for the $$1,000,000$ in damages. ABC's lawyers are virtually certain they will win the lawsuit

and receive the full amount of damages.

Required: Would ABC Grocers recognize a contingent gain under U$.$S$.$ GAAP and IFRS? If so$,$ how much?

Record necessary adjusting journal entries in their own adjusting journal entry workpaper and also

in the respective trial balance worksheet for $12/31/16.$

$12/31/20$x$2$ ABC Grocers is being sued by an employee who slipped on spilled milk and broke his back.

ABC's lawyers expect to lose the lawsuit and estimate the loss to be between $$1,000,000$ and

$$2,000,000.$ The single most likely outcome is $$1,500,000$ with the majority of other outcomes

being greater than $$1,500,000.$

Required: Would ABC Grocers recognize a contingent liability under U$.$S$.$ GAAP and IFRS? If so$,$ how much?