Siddle
Corp. was recently sued by a competitor for patent infringement. Lawyers have
determined that it is likely that Siddle will lose the case and that a
reasonable estimate of damages to be paid by Siddle is $200,000. In light of
this case, Siddle is considering establishing a $100,000 self-insurance
allowance. Siddle follows private enterprise GAAP.
What
entry(ies), if any, should Siddle record to recognize this loss contingency?
Siddle should record
a litigation accrual on the patent case, since the amount is both estimable and
likely.
|
Lawsuit Loss..........................
|
200,000
|
|
|
Lawsuit
Liability.................
|
|
200,000
|
The $100,000
self-insurance allowance can be achieved by an appropriation of retained
earnings or by note disclosure.
