K.C. Cattinated Inc. (a calendar year firm) is a local coffee shop in Mt. Pleasant, Michigan. In 2022 and early 2023, the firm experiences the following events.

1. On April 13^th 2022: K.C. is sued for cheating its customers by adding ice to cold beverages, thereby reducing the amount of precious liquid contained in the cups. By the time lawsuit occurs, the lawsuit loss is not probable and can not be estimated.
2. On May 18^th 2022: K.C. is sued for a week-long insomnia its customer sustained after the customer consumed K.C. signature expresso – The Death Wish. By the time K.C. is served, the lawsuit loss is probableand can be reasonable estimated between $ 90,000 to $ 100,000.
3. On January 28^th 2023 (before 2022 financial report is issued): new evidence related to ICE CUBE lawsuit surfaced. K.C.’s ice cube is on average 50% larger than industry standard! Thus, K.C. determines the lawsuit is probable and can be reasonable estimated at $ 15,500.

With respect to each of the above events,

1. Should K.C. recognize any gain/loss in its 2022 financial report? If so, what is the correct journal entry (entries)
2. Whether and how should K.C. disclose the pertinent gain/loss in its 2022 financial report.

Pertinent Accounting Standard Codification:

• 450-20-25-2

• 450-20-30-1

• 450-20-50-9

• 450-20-55-1

Answer rating: 100% (QA)

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