Commitments and contingencies Flashcards
On December 1, Year 5, Luge was awarded damages of $75,000 in a patent infringement suit it brought against a competitor. The defendant did not appeal the verdict, and payment was received in January Year 6.
Accrual only. The payment received subsequent to the balance sheet date should be accrued in Year 5 because it applies to a lawsuit won in Year 5. The amount is not a contingent gain given that the defendant did not appeal. If the defendant had appealed, disclosure, but not accrual, would be necessary.
On January 5, Year 6, Luge redeemed its outstanding bonds and issued new bonds with a lower rate of interest. The reacquisition price was in excess of the carrying amount of the bonds
Disclosure only. No accrual is necessary because the refunding did not affect balance sheet amounts at 12/31/Year 5. However, disclosure is most likely necessary to prevent the financial statements from being misleading. The statements for Year 5 must present the extinguishment loss with full disclosure
