Muscle Pro is a (fictional) public company engaged in selling protein powders and other performance-enhancing supplements. In 20x2, Muscle Pro was sued by a supplier alleging that Muscle Pro did not pay invoices for services received, and seeking $8.2 million in damages. At 12/31/x2, Muscle Pro included an estimated loss of $2 million in its year-end financial statements. During Q2 20x3, Muscle Pro entered a settlement agreement, whereby Muscle Pro agreed to settle the supplier's claims by paying $3 million in installments, as follows: $1 million to be paid at 12/31/x3, $1 million at 12/31/x4, and $1 million at 12/31/x5. Muscle Pro is rated BBB by Fitch throughout this multi-year period. Required: 

Assume you are on the accounting team for Muscle Pro. Describe the following: 

1. How did Muscle Pro initially record its estimated loss at 12/31/x2? 

2. What entry is required at 6/30/x3 to reflect signature of the settlement agreement in Muscle Pro's quarterly financial statements? 

3. What entries are required at 12/31/x3, 12/31/x4, and 12/31/x5? 

4. In what financial statement line item should the activity related to this agreement appear? 

5. What disclosures is Muscle Pro required to make surrounding this claim and agreement? For each of the preceding issues, provide Codification references supporting your conclusions

Answer rating: 100% (QA)

Initial Recording of Estimated Loss at 1231x2 Muscle Pro initially recorded the estimated loss at 12... View the full answer