Contingent Loss Memo

In: Business and Management

Submitted By tattooedgroove
Words 424
Pages 2
Memo To: | Lead Accountant, Martin Co. | From: | Michael Shaneyfelt | Date: | December 31, 2013 | Re: | Contingent Loss for Campbell Co. Lawsuit (Requirement 1) | | |

In response to your request for accounting guidance regarding the judgment issued in the Campbell v. Martin lawsuit, we have come to the following conclusion:

We recommend Martin adjust the $18 million loss contingency recorded in 2011 to $19 million in the current period.

This recommendation is in line with FASB guidance on accounting for contingencies as detailed in the Accounting Standards Codification.

These are the facts as we understand them. In 2011 Martin’s management accrued a loss of $18 million based on an estimated range of $16 million to $20 million. A judgment was ordered in September 2013 requiring Martin to pay Campbell $19 million for patent infringement. Martin immediately filed a Notice of Appeal with the Court of Appeals.

What amount should be adjusted for the liability recorded in 2011and should the adjustment be considered a 2013 event or prior period adjustment?

We recommend Martin adjust the $18 million loss contingency recorded in 2011 to $19 million in the current period. An example of the journal entry would be:

Loss on Contingent Lawsuit $1 million Estimated Liability for Contingent Loss $1 million

This event meets both conditions of ASC 450-20-25-2, which require recognition of a loss contingency. First, ASC 450-20-25-2(a) requires that information available before the date of the financial statements indicates the probably impairment of an asset or that a liability has been incurred at the date of the financial statements. ASC 450-20-25-2(b) then demands that the amount of the loss can be reasonably estimated.

The judgment against Martin ordering the company to pay $19 million is more than…...

Similar Documents


...Having examined the various models of grief and loss, it became evident that many look at it in the context of loss to death. The loss of a person through death is momentous to us as the most recognised source of grief but it is not the only source. “Loss as majestic as death or as mundane as taxes, is the sure thing in every life, the experience that is as common as April rain in almost everyday in some form or other, in our lives.” (Kennedy, E. & Charles, S.,C. 2001.pg372). After conducting my research, I realise that people grieve to secondary losses as well as primary losses. Grief can result from any loss: end of a relationship, leaving home to go to university or a family member with some sort of illness. In addition, one may experience grief as the result of the loss of something as well as someone. Taking all this into account, I decided to focus on Colin Murray Parkes. Parkes (1988) brought together psychological and social aspects of grief which is termed psychosocial transitions. Throughout this essay I will examine Parke's model and explain how this particular model can be applied to my own personal life. I will also demonstrate how this model can be applied to the social care field. My loss was losing my grandmother to Alzheimer's disease. It is not that she has physically died, but her identity and true self was gone. She was warm, loving and one of the most caring people I have ever met. I stayed with my grandmother every night since I was seven years of......

Words: 1037 - Pages: 5

Disclosures, Conditional and Contingent Liabilities

...liability can be made. The contingent liability for warranties meets both of the requirements from the accrual of a loss contingency, and the estimated amount of the loss should be reflected in the financial statements. In addition to recording the accrual, it may be advisable to disclose the factors used in arriving at the estimate by means of a note, especially when there is a possibility of a greater loss than was accrued. Situation 2 Subsequent to the date of a set of financial statements, but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the company. The amount of the loss can be reasonably estimated. Even though: (1) there is a probable loss on the contract, (2) the amount of the loss can be reasonably estimated and (3) the likelihood of the loss was discovered prior to the issuance of the financial statements, the fact that the contract was entered into subsequent to the date of the financial statements precludes accrual of the loss contingency in financial statements prior to the incurrence of the loss. However, the fact that the material loss has been incurred subsequent to the date of the financial statements but prior to their issuance should be disclosed by means of a note in the financial statements. The disclosure should contain the nature of the contingency and an estimate of the amount of a probable loss or a range into which the loss will probably......

Words: 597 - Pages: 3

Contingent Worker

...Definition of Contingent Workers “Contingent workers are those who do not have an implicit or explicit contract for ongoing employment. Persons who do not expect to continue in their jobs for personal reasons such as retirement or returning to school are not considered contingent workers, provided that they would have the option of continuing in the job were it not for these reasons” (The U.S. Bureau of Labor Statistics). Contingent worker are legally employees, but are not regular full-time employee of companies. They are also known as freelancers, independent professionals, temporary contract workers, independent contractors or consultants. Contingent workers are typically paid with no regard for wage standards and without benefits. There is a discussion about how the term contingent workers should be defined. The contingent workforce consists of many categories of workers, it may include those who are temporary workers and independent contractors, who are hired through staffing firms, or whose jobs are structured to last only for a limited time or until a completion of a project. Descriptions of common contingent workers categories by The U.S. Bureau of Labor Statistic (BLS) -Temporary employees or TEMPS generally work for temporary employment agencies or temporary staffing firms that place workers in companies for short-term assignments. They typically earn less than full-time employees and are less likely to receive benefits. -Contract Workers......

Words: 1067 - Pages: 5


...under developed capitalism, the totalitarian capitalism and the western imperialism in Middle East. In dealing with all three, western capitalist societies are in a very much favored position and are with full strategic initiatives in the on-going global politic and economic game. Currently, they are relatively disengaged with the under developed capitalism; are watching with caution at a rising competitive threat from the totalitarian capitalism in China; and are fighting against the people of Middle East with a time-tested imperialistic doctrine. They see not much of a threat from the under developed capitalist societies. They are confident in their ability in handling the potential Chinese competition in future. And they can not possibly loss in the extremely uneven handed fight against the people of Middle East. 3. The future trend I do not believe in a pre-determined fate for mankind. The future is resulted from actions of the present and different action would lead to a different future. Man interacts with his environment under the guidance of his intelligence. He relies on a mental framework to anticipate future possibilities, and he designs his action to 8 induce the possibility he deems the most desirable. On the other hand, the capacity of human intelligence is limited. Facing the vast, ever enwraping darkness of the universe, human intelligence is like a feeble candle light, with which one can only see so far with clarity on what is coming on his way. I will try......

Words: 5315 - Pages: 22


...T.C. Memo. 2009-93 UNITED STATES TAX COURT THOMAS J. WOODY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 30077-07. Filed April 30, 2009. P alleges that during tax year 2004 he had a real estate investment and rental business. P deducted expenses associated with this activity as business expenses under I.R.C. sec. 162. R disallowed the business expense deductions. On the basis of this disallowance, R determined a deficiency in P’s Federal income tax for 2004. P petitioned this Court for redetermination of that deficiency. Held: P was not actively engaged in a real estate investment and rental business when he incurred and paid the expenses he deducted as Schedule C business expenses in 2004. Therefore, the costs P deducted are pre-operational start-up expenditures and may not be deducted as business expenses under I.R.C. sec. 162. - 2 Bruce E. Gardner, for petitioner. Scott L. Little, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION GUSTAFSON, Judge: This case is before the Court on petitioner Thomas J. Woody’s petition for redetermination of his Federal income tax deficiency for 2004 which the Internal Revenue Service (IRS) determined to be $4,955. The issue for decision is whether Mr. Woody is entitled under section 1621 to deductions claimed on his 2004 Schedule C, Profit or Loss From Business. As a threshold matter, we must decide whether Mr. Woody was actively engaged in the trade or business of real estate investment and rental......

Words: 3496 - Pages: 14


...Memorandum To: | Senator X | From: | Christoph B. Mund | Date: | April 25th, 2012 | Subject: | Health Care Spending Growth and Reform | SUMMARY The following memo seeks to highlight the past and current problems facing federal health care expenditures within the U.S. It tries to answer the question if health care spending is now on more sustainable path along with giving projections for its current outlook. More specifically it addresses “supply-side” reforms, “demand-side” reforms and “voucher” reforms within the Medicare program, analyzing the benefits and downsides of each and what underlying problems these approaches contain. The memo summarises with recommendations as to which reform should be put in practice to achieve the desired results within the health care market. PROBLEM ANALYSIS 1. Health care expenditures are on an unsustainable path Reasons: * Aging of the population * Increase in health care costs due to excessive coverage * New medical technologies Under current law, spending for mandatory health care programs would increase from 5.6% of GDP today to about 9% of GDP in 2035. Total health care spending grew by 3.9% in 2010 and reached $2.6 trillion, or $8,402 per person. This is mainly caused by an aging of the population, an increase in retirement of the “baby boomer” generation, a rise in health care costs and a rapid innovation of medical technologies. All these factors lead to an increase in the federal budget......

Words: 1615 - Pages: 7


...Fat‐Loss Secret # 1 1.  The #1 make or break success factor is getting your mindset right! Looking back over the last couple of years at my clients who have had the most Jaw Dropping, Eye Popping Extreme results, and they all had a certain mind set before every workout.  No, they didn’t put on war paint and go commando (well some of them did).  Simply put, before every workout, they committed to giving 100%.  No excuses, No complaining.  Believe it or not, once you practice this mindset a few times, it becomes an easy habit. ● Mindset Tip – before each workout, visualize what is most important to you.  Being healthy for your kids, looking ripped at the beach, having girls want your body, being the hottest girl at the club, etc.  Picture what inspires you and say to yourself‐‐ that’s me, that’s me, that’s me... Fat‐Loss Secret # 2 2. Technically, this does not burn fat, but it will make your waist look slimmer instantly. As I look around, I see endless clients with poor posture, which is the result of training programs which overly concentrates on working the chest and shoulders, combined with sedentary jobs where you are sitting at a desk or in front of a computer terminal all day. The result of this poor posture is rounded shoulders and a slumped forward appearance, which just pushes your belly out! To test this, all you have to do is stand up straight while drawing your shoulders back and instantly witness your stomach flatten. Strengthening the muscles responsible for...

Words: 2252 - Pages: 10

Contingent Fees

...A contingent fee (in the United States) or conditional fee (in England and Wales) is any fee for services provided where the fee is payable only if there is a favourable result. In the law, it is defined as a "fee charged for a lawyer's services only if the lawsuit is successful or is favorably settled out of court.... Contingent fees are usually calculated as a percentage of the client's net recovery."[1] In the English legal system, it is generally referred to as no win no fee. A conditional fee agreement between a law firm and a client. The usual form of this agreement is that the solicitor will take a law case on the understanding that if lost, no payment is made. However, if the case is won, the lawyer will be entitled to the normal fee based on hourly billing, plus a success fee. The success fee in England must be as a percentage no greater than 100% of the normal fee. This contrasts with the contingency fee in the US, which gives the successful attorney a percentage of the damages awarded in favor of his client. This makes it easier for the poor to pursue their civil rights since otherwise, to sue someone for a tort, one must first be wealthy enough to pursue such litigation in the first place. However, because of the high risk, few attorneys will take cases on a contingency basis unless they feel the case has good merit. According to a 2004 book by law professor Herbert Kritzer, contingent fees were allowed as of that year in the following countries:......

Words: 1018 - Pages: 5


...Memo From ………………. To…………….. Date: January 21, 2015 Issue: Recording of advertising costs without considering accounting principle Mr…………. Determination of Facts of the situation: Preparation of financial statements for external use is my first responsibility as an employee of sporting goods chain. I need to prepare quarterly statements for the ending period June 30, 2005, which will be given to National Savings & Loan. CFO asked me to take advantage of the 1, 200, 000 cost of advertising campaign which was conducted in May and June of 2005. This capitalization can save from quarterly operating loss as well as sustain standing of company’s goods with creditor. CFO have confidence that these commercials can increase the sales in May and June and the effect of advertising will continue in July. While according to (Nelson, 2011), matching principle stated that expenses should be reported on income statement in the same period in which the revenue, to which those expense are associated, is earned because in some situations it difficult to identify that in which period expenses incurred and in which period revenue is earned related to those expenses such as advertising. In this situation principles of accounting indicates that the recognition of advertising should be made as expense in the period it is incurred. Identification of ethical issue and stakeholders: The ethical dilemma is whether my responsibility to meet the request of CFO to take the advantage of......

Words: 781 - Pages: 4

Accounting Memo

...MEMO To: Client From: Accounting Firm Re: Lawsuit Pending lawsuits against a company are both expensive and detrimental to a company’s image. The decision to understand the implications of a lawsuit to the company is the first step in minimizing risk and potential loss to the organization. Research was conducted based on the guidelines of the FASB to answer the client’s questions pertaining to the lawsuit. The memo provided to the client will answer the following questions: How are requirements for contingencies reported? What would happen to the financial statements if the client loses the lawsuit? Will the client’s debt be forgiven if the mortgage is refinanced or if their mortgage will be refinanced if they file Chapter 11? How will the treatment on the financial statement be resolved? How will the reparations of the patent be treated on the financial statements as a result of losing the lawsuit? To report requirements for contingencies and explain the financial statements consequences if the client loses the lawsuit. When dealing with a lawsuit, a company must know whether or not to consider contingencies. According to Schroeder, Clark, and Cathey (2005), a contingency is a possible future event that could perhaps have possible implications on the firm. The four most common contingency methods: Pending lawsuits Income tax disputes Notes......

Words: 1058 - Pages: 5

Contingent Liabilities

...A contingent liability is a potential loss that may occur at some point in the future, once various uncertainties have been resolved. This liability is not yet an actual, confirmed obligation. The exact status of a contingent liability is important when determining which liabilities to present in the balance sheet or in the attached disclosures. It is of interest to a financial analyst, who wants to understand the probability of such an issue becoming a full liability of a business, which could impact its status as a going concern. Examples of contingent liabilities are the outcome of a lawsuit, a government investigation, or the threat of expropriation. A warranty can also be considered a contingent liability, since there is uncertainty about the exact number of units that will be returned by customers for repair or replacement. For example, ABC Company files a lawsuit against Unlucky Company for $500,000. Unlucky’s attorney feels that the suit is without merit, so Unlucky merely discloses the existence of the lawsuit in the notes accompanying its financial statements. Several months later, Unlucky’s attorney recommends that the company should settle out of court for $75,000; at this point, the liability is both probable and can be estimated, so Unlucky records a $75,000 liability. The accounting rules for the treatment of a contingent liability are quite liberal - there is no need to record a liability unless the risk of loss is quite high. Thus, you should review......

Words: 325 - Pages: 2

Provision, Contingent Liabilities & Contingent Assets

...Compiled AASB Standard AASB 137 Provisions, Contingent Liabilities and Contingent Assets This compiled Standard applies to annual reporting periods beginning on or after 1 January 2011 but before 1 July 2013. Early application is permitted. It incorporates relevant amendments made up to and including 27 October 2010. Prepared on 26 November 2010 by the staff of the Australian Accounting Standards Board. Obtaining Copies of Accounting Standards Compiled versions of Standards, original Standards and amending Standards (see Compilation Details) are available on the AASB website: Printed copies of original Standards and amending Standards are available for purchase by contacting: The Customer Service Officer Australian Accounting Standards Board Level 7 600 Bourke Street Melbourne Victoria AUSTRALIA Phone: Fax: E-mail: Website: Postal address: PO Box 204 Collins Street West Victoria 8007 AUSTRALIA (03) 9617 7637 (03) 9617 7608 Other Enquiries Phone: Fax: E-mail: (03) 9617 7600 (03) 9617 7608 COPYRIGHT © 2010 Commonwealth of Australia This compiled AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and......

Words: 12398 - Pages: 50

M International Loss Contingency

...Memo To: M International From: ------------------------------------------------- Re: Loss Contingency Recognition and Reversal Background The company has been engaged in a dispute over a long-standing litigation with W Inc. The dispute involves a specific patent infringement matter. In May 2007, W Inc. filed a claim against the company for patent infringement and management determined that a loss was probable and estimated it would be between $15 million and $20 million, with $17 million being the most likely amount of loss within the estimated range (December 31, 2007). In September 2009, a jury trial took place for the litigation involving the company and W Inc. A verdict for the trial was reached; a judgment was ordered that the company pay W Inc. $18.5 million on September 24, 2009. The company filed for a Notice of Appeal with the Court of Appeals in November 2009 and in December 2010, the Court of Appeals issued a ruling that reversed the previous order of $18.5 million to W Inc. W Inc. petitioned for a rehearing before the same panel of the Court of Appeals judges on January 6, 2011 against the company’s reversal, but the panel decided against the rehearing and declined W Inc.’s request. Management, along with in-house legal counsel, determined the matter with W Inc. was final on February 28, 2011. Issues 1. What amount should the company recognize as a liability for the year ending December 31, 2007? 2. Should the company adjust its liability if the......

Words: 973 - Pages: 4


...Mombasa, Inc Memo To: CEO From: Tex Matters CC: Board of directors Date: 4/23/2012 Re: our ethical dilemma Thank you for allowing the opportunity to work on this important issue. It is not only important for us to do business, but it is important for us to do it the right way. We have an obligation not only to ourselves, but to our shareholders, customers, family and most importantly our country. We represent our country wherever our business takes us. As requested, we have studied the strength and weakness of every decision we can make with regards to this very important issue. Our analysis studied every important element. We gathered all important information. We asked all important questions. Based on our intensive study we have come up with the following possible alternatives: 1. We should hold our order and remanufacture it, then send it. 2. We should send the order as is to prevent loss to our bottom line. 3. We should inform our client of the issue, and offer to send the order at a discounted price. All the alternatives we concluded were legitimate in their own right. Any decision we make will have a justification. The most important element in our decision making process will be to evaluate whether or not each decision falls within our values. Our values are our rocks. We cling onto them in hard times. They always lead us. When we step out of our comfort zone, it affects our decision making. We impair our ability to make the right decision and......

Words: 2112 - Pages: 9

Contingent Liability

...What is a contingent liability? A contingent liability is a potential liability…it depends on a future event occurring or not occurring. For example, if a parent guarantees a daughter’s first car loan, the parent has a contingent liability. If the daughter makes her car payments and pays off the loan, the parent will have no liability. If the daughter fails to make the payments, the parent will have a liability. If a company is sued by a former employee for $500,000 for age discrimination, the company has a contingent liability. If the company is found guilty, it will have a liability. However, if the company is not found guilty, the company will not have an actual liability. In accounting, a contingent liability and the related contingent loss are recorded with a journal entry only if the contingency is both probable and the amount can be estimated. If a contingent liability is only possible (not probable), or if the amount cannot be estimated, a journal entry is not required. However, a disclosure is required. When a contingent liability is remote (such as a nuisance suit), then neither a journal nor a disclosure is required. A product warranty is often cited as a contingent liability that is both probable and can be estimated. What is the difference between a contingent liability and an estimated liability? A contingent liability is a potential liability (and a potential loss). It is dependent upon a future event occurring or not occurring. For......

Words: 982 - Pages: 4