Vancouver Inc, a publicly traded company had the following two events happen in a short time around its fiscal year-end:

a) On Dec. 23, 2020, the company was served notice of a lawsuit filed by several customers as a result of “perceived” defective products claiming damages of $100,000. Vancouver’s chief financial officer (CFO) talked to the company’s legal team, which was of the opinion that the lawsuit had merit and determined that the company had the following probabilities of loss:

Probability Potential                          Loss

             25%                                     $10,000

            50%                                        30,000

            25%                                        50,000

b) On December 31, 2020, the company estimated that it owed $47,000 in income taxes. On January 15, as the financial statements were being prepared, the amount was calculated to be exactly $48,980.

Instructions: 

What should the company report on their December 31, 2020, Statement of Financial Position under liabilities as a result of these events?

Answer rating: 100% (QA)

a As per GAAP if it is probable likely to occur that a payment will be required to fulfill an obliga... View the full answer