Case 13 08 Loss Contingency

Powerful Essays
Case 13-08
Accounting for a Loss Contingency for a Verdict Overturned on Appeal
Facts of the Case
The scenario that present this case is a company faces litigation. I have to surmise how this liability will be reported as well as the resulting effects on the financial statements in the years presented. I will present some facts of this case, and by these facts I will resolve the primary accounting which in my opinion it could accrued the liability, disclose the liability or count it as immaterial. W Inc and your company have been engaged in litigation over a specific patent infringement matter. In May 2007, W filed a claim. On December 31 2007, your company determined that a loss in connection to the claim was probable. The company estimated a loss between 15 and $20 million USD. $17 million USD was named as the most likely amount of loss. A jury trial took place on September 2009. On September 24 2009 the jury found in favor of W. The judgment required your company to pay W $18.5 million USD. In November 2009, your company filed an appeal. In December 2010, the court of appeals overturned the jury verdict and the $18.5 million judgment. On January 6th 2011 W filed a petition for re-hearing. On February 10, 2011, the appellate judges declined W’s petition. On February 28 2011, the company’s management determined that the lawsuit was closed.

According to ASC 450-20-20 (Glossary) defines:

Contingency

An existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an entity that will ultimately be resolved when one or more future events occur or fail to occur.
Gain Contingency

An existing condition, situation, or set of circumstances involving uncertainty as to possible gain to an entity that will ultimately be resolved when one or more future events occur or fail to occur.
Loss Contingency
An existing condition, situation, or set of circumstances

You May Also Find These Documents Helpful