Question

On “Bring Your Children to Work Day" at Wing Corporation, Susan Gills, a Wing employee, brought her ten-year-old daughter to work. ACE was installing Wing's new computer system on that day. After installation, when Susan attempted to adjust the monitor connected to her new computer, she inadvertently knocked the monitor off the desk and onto the floor. The screen shattered causing a shard of glass to strike the child's toe resulting in four stitches. Susan has blamed the installer, ACE, for placing the monitor in a dangerous position near the back edge of her desk. The damages to this point have been minimal as Susan drove her child to their physician and paid the $20 copay for an office visit. Yet, the Gills family has sued ACE for the following: Likely future plastic surgery Emotional distress to Child Emotional distress to Susan Total $ 25,000 500,000 1.200,000 $1,725,000 ACE's lawyers believe that this case, with the possible exception of the plastic surgery (for which the HMO won't pay), is frivolous. ACE has no insurance to cover this sort of liability. If this case goes to court, ACE's on staff attorneys will handle the case. To eliminate any possible bad press from this case, ACE's lawyers suggested settling for a "nuisance value" of $20,000. The family rejected this offer out of hand and asked for $500,000 to settle this out of court. ACE has decided, at least at this point, to refuse any further settlement offer. In the lawyer's letter to you, ACE's lawyers indicated that they believe that ACE has just and meritorious defense available" to fight this case. Furthermore, ACE's legal counsel for the case indicated that while she agrees that this case is largely frivolous, litigation involving a young child is somewhat of a gamble and that making a definite prediction on the outcome of the case is impossible. In the end, she believes the judgment will likely be $15,000 for the plastic surgery. What entry or disclosure, if any, is necessary in this circumstance?

Answer 1

This is a case of possible or probable contingency. Possible contingency have remote chance of resulting in damages but can occur too as in this case involving a child hurt and a plastic surgery requirement. Though damages may be minimal. Lawyer is able to estimate the amount of $15000.

Entry - Loss from Lawsuit debit $15000

Lawsuit Payable $15000

Disclosure in footnotes - A contingent liability of $15000 is recorded in books to account for a lawsuit filed by an employee on account of minor accident occured to her child within office premises. Lawyer's estimated loss could be $15000