[Broag]

I thought contingency gains were only disclosed and not accrued? Even the answer to this question suggests that you disclose. In all of my studies, I’ve always learned that if you have a contingency loss and depending on it’s probability, you accrue and/or disclose. Gains I always thought you just disclosed in the notes to the F/S. Can someone clarify this for me? Thanks.

Town, Inc., is preparing its financial statements for the year ending December 31, 20X1. On December 1, 20X1, Town 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 20X2, prior to the issuance of the financial statements. What is the reporting requirement?

Incorrect A.

Disclosure only

B.

Accrual only

C.

Both accrual and disclosure

D.

Neither accrual nor disclosure

You answered A. The correct answer is C.

Town, Inc., has a legally enforceable right to the settlement from the lawsuit on December 1, 20X1, so it would be reported in 20X1. The circumstances of the accrual of the gain should be disclosed in the interest of full disclosure.

REG - 79
FAR - ?
AUD - ?
BEC - ?

[CM]

The key here is that first the payment was received in January 2012, which probably occurred while the year-end financial statements were been prepared. Also, in this case Town Inc. is the defendant and has been awarded the $75k in December 20×1 and the plaintiff did not appear, which makes the the award a recievable as the plaintif is obligated to pay the defendant. In other words, the case was closed before year end and there was no probability for Town Inc. not to get the money. I hope this makes sense.

AUD - 80
BEC - 73
FAR - 78
REG - NINJA in Training

"Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible." Francis of Assisi

I really cannot believe BEC is giving me such a hard time.

FAR: 78 (5x)
AUD: 80 (3x)
BEC: 9/07/2016
REG: 12/06/2016

Failure is never an option.

"Faith in your own powers and confidence in your individual methods are essential to success." Roderick Stevens

[monikernc]

this is not a contingency. the payment is a subsequent event. the judgement was decided before year end and award payment was received after the date of the financial statements but before the financial statements were issued on an event that was initiated before the date of the financial statements. the accrual will be recognized and disclosure will explain the award.
the payment will be recognized in the year it was received.

AUD - 93
BEC - 82
FAR - 76
REG - 88

How have you been?
Ninja book and MCQs and the forum, all first try! 2016
Licensed State of Montana April Fool’s Day 2020
State of Colorado June 2020 - AICPA Ethics 93
Experience was the worst part of the journey for me. You?
If you want things to change you have to do something different.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Broag]

I'm just not seeing the solution here. I see Town, Inc. as the plantiff who was bringing suit to the competitor. Still confused…Thanks anyway

REG - 79
FAR - ?
AUD - ?
BEC - ?

[Broag]

Thanks monikernc.. Makes sense now.

REG - 79
FAR - ?
AUD - ?
BEC - ?

[Skynet]

I always thought a Gain Contingency occurs when a Broke Dude or Broke Girls marries a Sugarmama or Sugardaddy.

AUD - 90
BEC - 78
FAR - 84
REG - 87

World Domination Plan

Phase I : Pass CPA Exams - Complete
Phase II : Megan Fox - In Progress
Phase III : Megan Fox & Scarlett Johansson Lingerie Pillow Fight
Phase IV : Form the new Charlie's Angels with Megan Fox, Scarlett Johansson, & Gal Gadot
Phase V : TBD

BEC : 78
REG : 87
FAR : 84
AUD : 90

World Domination Plan

Phase I : Pass CPA Exams - Complete
Phase II : Megan Fox - Initiated
Phase III : Bring back 8-Tracks
Phase IV : Megan Fox & Scarlett Johansson Lingerie Pillow Fight
Phase V : TBA

[Author]

Replies