m Clusia will win the case and be awarded $2.5 million. In November 2021, Classical became aware of a desion flaw in an industrial saw that poses a poreme cal hazard. A product recall appears unavoidable. Such an action would likely cost the company lustrial saw that poses a potential electri- w Classical offered $25 cash rebates on a new model of iesaw. Customers must mail in a prool-of-purcia seal from the package plus the cash register receipt to receive the rebate. Experience suggests that 60% Ol rebates will be claimed. Ten thousand of the jigsaws were sold in 2021. Total rebates to customers in 2021 were $105,000 and were recorded as promotional expense when paid. 3-6 The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus's fiscal year ends on December 31. Financial statements are issued in March 2022. Erismus prepares its financial statements according to U.S. GAAP. Required: Indicate the amount of asset or liability that Erismus would record, and explain your answer. 1. Erismus is defending against a lawsuit. Erismus's management believes the company has a slightly worse than 50/50 chance of eventually prevailing in court, and that if it loses, the judgment will be $1,000,000. 2. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses, management believes that damages could fall anywhere in the range of $2,000,000 to $4,000,000, with any damage in that range equally likely 3. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses, management believes that damages will eventually be $5,000,000, with a present value of $3,500,000. 4. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is probable that the company eventually will prevail in court, and that if it prevails, the judgment will be $1,000,000. 5. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is virtually certain that the company eventually will prevail in court, and that if it prevails, the judgment will be $500,000. [This exercise is a variation of E 13-21 focusing on reporting under IFRS). Refer to the circumstances listed in E 13-21, but assume that Erismus prepares its financial statements according to International Financial Reporting Standards. les 013-6 The following selected circumstances relate to pending lawsuits for Erismus, Inc. Erismus's fiscal year ends on December 31. Financial statements are issued in March 2022. Erismus prepares its financial statements according to U.S. GAAP. Required: Indicate the amount of asset or liability that Erismus would record, and explain your answer. 1. Erismus is defending against a lawsuit. Erismus's management believes the company has a slightly worse than 50/50 chance of eventually prevailing in court, and that if it loses, the judgment will be $1,000,000. 2. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses, management believes that damages could fall anywhere in the range of $2,000,000 to $4,000,000, with any damage in that range equally likely. 3. Erismus is defending against a lawsuit. Erismus's management believes it is probable that the company will lose in court. If it loses, management believes that damages will eventually be $5,000,000, with a present value of $3,500,000. 4. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is probable that the company eventually will prevail in court, and that if it prevails, the judgment will be $1,000,000. 5. Erismus is a plaintiff in a lawsuit. Erismus's management believes it is virtually certain that the company eventually will prevail in court, and that if it prevails, the judgment will be $500,000