Respuesta :
a). M should record a liability of $12 million for the fiscal year that ended on December 31, 2007.
b) Based on the lower court's ruling, an additional liability of $ 2 million needs to be recorded for the fiscal year that ended on December 31, 2009. It is necessary to raise the obligation from $ 12,000,000 to $ 14,000,000.
c). Due to a favorable ruling from the Court of Appeals, M does not need to register any liability for the fiscal year that concluded on December 31, 2007. Reversing the responsibility is necessary.
a). A loss contingency must be recognized in accordance with ASC 450 if the loss is regarded as probable and the magnitude of the loss can be reasonably assessed. The best estimate within that range is recorded as a liability under US GAAP if a range of losses from the litigation claim are assessed and a best estimate is provided within that range. The low end of the range must be recorded if a best estimate is not available within that range. Since the best estimate within the range is now available, $ 12 million is acknowledged as liability in the case at hand.
b). The change should not be viewed as a prior period adjustment but rather as a 2009 event. The first estimate was reasonable and made in good faith, therefore the justification. The details of the lawsuit's nature and the scope of any potentially significant losses would have previously been mentioned in the notes to the financial statements for 2007. Therefore, the users of the financial statements would already be aware that the loss reported is merely a reasonable estimate rather than a precise measurement.
c). The liability is no longer required and should therefore be reversed because the loss from the case is no longer likely as a result of the favorable Appeals court ruling and as per the view of the in-house legal counsel referring to the subject as closed.
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Correct Question:
M International (“M”) and W Inc. (“W,” a competitor of M) have been engaged in longstanding litigation over a specific patent infringement matter. Below is a summary timeline of specific events that have taken place related to this matter: 1. In May 2007, W filed a claim against M for patent infringement. 2. For the year ended December 31, 2007, management of M determined that a loss for this matter was probable and represented that the estimate of loss was in the range of $10 million to $15 million, with $12 million being the most likely amount of loss within the range. 3. A jury trial took place in September 2009. 4. The jury reached a verdict on September 24, 2009, and a judgment was ordered infavor of W. The judgment required M to pay W $14 million. 5. In November 2009, M filed a Notice of Appeal with the Court of Appeals. 6. In December 2010, the Court of Appeals issued a ruling in favor of M’s appeal and reversed the lower court’s ruling on the matter. This meant that the Court of Appeals overturned the jury verdict and the $14 million judgment against M. 7. On December 20, 2010, management of M determined this matter was closed upon discussions with in-house legal counsel. Required:
a. For the year-end December 31, 2007, financial statements, what amount should M record as a liability?
b. For the year-end December 31, 2009 financial statements, should M adjust its liability? If so, what amount should be recorded; and should the amountof the adjustment be considered a 2009 event or a prior period adjustment?
c. For the year-end December 31, 2010 financial statements, what amount should M record as a liability?
