[Char143]

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?

A.Disclosure only

B.Accrual only

C.Both accrual and disclosure

D.Neither accrual nor disclosure

The answer is C, which I get, but if the question stated “the defendant is appealing the verdict” would we still accrue it (disclose only)? I feel like no accrual if fighting the verdict, but I want to make sure.

AUD - 84
BEC - 79
FAR - 78
REG - 79

I'm done! 🙏🏼

 

Licensed CPA

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Anonymous]

No, accrual only disclosure. Gain contingencies are recognized when a legal requirement for payment by the plaintiff has been met, the plaintiff has agreed to the settlement and payment is reasonably assured.

[Scared-cpa]

You're right, if the verdict was appealed, it would be disclosed but NOT accrued. Gain contingencies are only accrued when they are legally enforceable, pretty much 100% assured.

"The more I practice, the luckier I get."

FAR - 67, 82 (Expires 07/31/18)
AUD - 68, 79
REG - 75
BEC - 82

Wiley CPAexcel + Ninja

I cannot believe I am done.

[Mike J]

But wouldn't whether to accrue and/or just disclose depend on an assessment by legal counsel, specific to the appeal?

After all, an original law suit is considered “probable” or “reasonably possible” to be a loser by an attorney not our own feeling as a CPA.

AUD - 90
BEC - 79
FAR - 77
REG - 77

They don't trust JUST ANYBODY to count beans

[Scared-cpa]

Mike, in most situations it seems to be legal counsel's decision on how probable a contingency is that we base the accrual or disclosure upon. However, whether the gain contingency is probably or not, it doesn't matter. A gain contingency is not recognized until certain that it will be received. So not probable or reasonably assured, but guaranteed. This is my take on it.

"The more I practice, the luckier I get."

FAR - 67, 82 (Expires 07/31/18)
AUD - 68, 79
REG - 75
BEC - 82

Wiley CPAexcel + Ninja

I cannot believe I am done.

[Author]

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