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FAR6 Activity#3
FAR6 Activity#3
1. With respect to the first lawsuit, the entity would recognize a loss and accrue a liability
of 1,000,000 as 51% would be viewed as probable.
2. In relation to the second lawsuit, the entity would recognize and accrue a liability for the
midpoint of the range 4,000,000.
3,000,000 + 5,000,000 = 8,000,000
8,000,000 / 2 = 4, 000,000
3. In respect to the third lawsuit, the entity would consider the time value of money and so
would recognize a loss and accrue a liability for the midpoint of the range 2,000,000.
1,500,000 + 2,500,000 = 4,000,000
4,000,000 / 2 = 2,000,000
4. In relation to the fourth lawsuit, the entity would make no accrual as 25% would not be
viewed as probable. Only a disclosure note is appropriate.
1. Only a disclosure is necessary because it is not probable that the company will be liable,
although the amount can be measured reliably.