Case $13-8$

Accounting for a Loss Contingency for a Verdict Overturned on Appeal

M International $($M$)$ and W Inc. $($W$),$ a competitor of M$,$ have been engaged in longstanding litigation over a specific patent infringement matter. Below is a summary

timeline of specific events that have taken place related to this matter:

$$ In May $2017,$ W filed a claim against M for patent infringement.

$$ For the year ended December $31,2017,$ management of M determined that a loss

for this matter was probable and represented that the estimate of loss was in the

range of $$15$ million to $$20$ million, with $$17$ million being the most likely

amount of loss within the range.

$$ A jury trial took place in September $2019.$

$$ The jury reached a verdict on September $24,2019,$ and a judgment was ordered in

favor of W$.$ The judgment required M to pay W $$18\mathrm{.}5$ million.

$$ In November $2019,$ M filed a Notice of Appeal with the Court of Appeals.

$$ In December $2020,$ the Court of Appeals issued a ruling in favor of M$$s appeal

and reversed the lower court$$s ruling on the matter. This meant that the Court of

Appeals overturned the jury verdict and the $$18\mathrm{.}5$ million judgment against M$.$

$$ On January $6,2021,$ W filed a petition for a re$-$hearing before the same panel of

appellate judges against the reversal of ruling by Court of Appeals.

$$ On February $10,2021,$ the appellate judges declined the petition for a re$-$hearing.

$$ On February $28,2021,$ management of M determined this matter was closed upon

discussions with in$-$house legal counsel.

Required:

$2.$ For the year$-$end December $31,2019,$ financial statements, should M adjust its

liability? If so$,$ what amount should be recorded; and should the amount of the

adjustment be considered a $2019$ event or a prior period adjustment? include sources from fasb codification to support your answer