• On January 5, 2021, PPP was sued by a customer that claimed that they had a fire in their home as a result of the defective power tool that was sold to them by PPP. The customer is suing PPP for $200,000 in damages. Legal counsel suggested that there was a 40% chance the customer would win and if the customer were to win, past cases of similar natures revealed that an appropriate payout range would be between $10,000 to $30,000 with equal likelihoods between that range.  

• In order to avoid a public lawsuit Joe insisted on settling with this customer out of court and forcing them to sign a non-disclosure agreement. The settlement payment of $20,000 was made on January 20, 2021.  

• Considering the lawsuit was filed prior to issuing the financial statements Joe accrued for the lawsuit in the 2020 year-end statements. Since an NDA was signed, there was no additional information surrounding the lawsuit provided in the notes to the financial statements.  

• In addition, the remaining $15,000 of power tool inventory was written off in the event that PPP could not sell the remaining units of similar inventory. To date this has been an isolated case and PPP has not lowered the selling prices of the power tools.   

1) Record the necessary Journal entries

2) According to IFRS, should the lawsuit be disclosed on the financial statements

Answer rating: 100% (QA)

Answer Journal enties Date particulars Amount CoV NO Amoun... View the full answer