Portland’s Best Coffee has a litigation claim of $100,000 against it. As of 12/31/2020, Portland considered...
Portland’s Best Coffee has a litigation claim of $100,000 against it. As of 12/31/2020, Portland considered it probable that it would lose $75,000 on the claim. After the 2020 year end, but before issuance of the financial statements, Portland settled the litigation for $60,000. How much of a litigation liability should Portland show in its 12/31/2020 financial statements?
Homework Answers
Answer: Portland should show liability for litigation for $60000
as
Event occurring after balance sheet date if provide some evidence relating to the liability or provision of liability existing on balance sheet date should be considered if financial statements are still not issued
as in present case Litigation case is existing on balance sheet date and $75000 is the probable liability on balance sheet date. Settlement of the same litigation claim after balance sheet date but before issuance of Financial statements provide more evidence relating to the even existing on balance sheet date so it must be considered to recognize the liability for claim on balance sheet date i.e. 12/31/2020
Hence liability will be recorded at $60000
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