Taylor

Security$$ Systems' revenues for

$20$ Upper X $020$X$0$

totaled

$ $7\mathrm{.}6$$$7\mathrm{.}6$

million. As with most$$ companies,

TaylorTaylor

is a defendant in lawsuits related to its products. Note $14$ of the

TaylorTaylor

Annual Report for

$20$ Upper X $020$X$0$

explains the$$ company's policy on legal$$ proceedings, stating that they will accrue for amounts related to legal matters if liability is probable and if it is reasonable to estimate an amount.

Requirements

$1.$

Suppose

TaylorTaylor$\text{'}$s

lawyers believe that a significant legal judgment against the company is reasonably possible. How should

TaylorTaylor

report this situation in its financial$$ statements?

$2.$

Suppose

TaylorTaylor$\text{'}$s

lawyers believe it is probable that a

$ $1\mathrm{.}3$$$1\mathrm{.}3$

million judgment will be rendered against the company. Report this situation in

TaylorTaylor$\text{'}$s

financial statements. Journalize any entry requirements by IFRS. Explanations are not required.

Question content area bottom

Part $1$

Requirement $1.$ Suppose

TaylorTaylor$\text{'}$s

lawyers believe that a significant legal judgment against the company is reasonably possible. How should

TaylorTaylor

report this situation in its financial$$ statements?

$$First$,$ let's decide how the lawsuit should be reported in the financial statements.