Kaslow Corporation was sued for losses incurred by a customer due to some defective materials supplied by
Question:
Kaslow Corporation was sued for losses incurred by a customer due to some defective materials supplied by Kaslow in 2019. At the end of 2019, the company was not aware that there was a problem and no provision had been made for any loss and no other disclosure was made in the 2019 annual financial statements. In preparing the December 2020 financial statements, the company sought their law firm’s opinion with respect to this matter. The lawyers responded that they believed that there was a 90% likelihood that Kaslow would be found negligent and have to pay damages estimated to be between $600,000 and $800,000, with any value in that range equally likely. The company recorded a provision based on this information. On February 1, 2021, Kaslow’s lawyers contacted Kaslow and stated that the plaintiff had offered to settle their claim for $550,000. The lawyers estimated their total fees for this matter to be $80,000. Kaslow has instructed their lawyers to accept the plaintiff’s offer. Kaslow Corporation issued their 2020 financial statements on February 22, 2021 Required: What amount, if any, should be provided in the 2020 financial statements of Kaslow Corporation and what disclosure, if any, is required with respect to this claim?
