Question

I need to fill boxes in a table below. I have answered everything except 1b for GAAP. The answer $4,200,000 is wrong, and I don't know what to put there.

HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply: a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $6,200,000 and $11,200,000, with each amount in that range equally likely. b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $4,200,000 and $9,200,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material. c. HW is defending against another lawsuit for which management believes HW has a slightly better than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $4,200,000 and $10,200,000, with each amount in that range equally likely. d. HW has $11,200,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt. Required: 1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS. 2. Consider the total effect of items a-d. If HW's goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal? Complete this question by entering your answers in the tabs below. Required 1 Required 2 For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS. U.S. GAAP IFRS $ $ a. Accrue liability b. Accrue liability Do not accrue liability d. Long-term liability Total liabilities c. Do 6,200,000 Accrue liability 4,200,000 Accrue liability Accrue liability 11,200,000 Short-term liability 21,600,000 $ $ $ $ $ 8,700,000 6,700,000 7,200,000 11,200,000 33,800,000 $ $

Answer 1

Answer Page No 0 @ the low is probable e can be creasonably estimated 0.ş. GAAP = accwe a liability - $ 6,800,000 IFRS = Acerve a liabilily = mid point of the range - 66200,000 + 11200,000) = $8700,000 DOS GAAP = Present Valeies would not be considered due to uncertain timing of cashflows - lower end of the undiscounted orange = $6200,000 TERS - Present values would be essed - orelevant midpoint of range = 76.4200,000 + 9200,000 ..= $6400,000 ♡. Online probable according to Zers's use of the term IFRS = relevant mid point of sange r 4,200,000 + 10200,000 $4200,000

o - Page No ③ financing was obtained prior to financial statement issuance but not bebore the balance sheet date US. GAAP Long term liabikly - $11.200,000 IFRS = short term liability = $11200,000 IFRS b. C. di U.S. GAAP Accrue liability $6200000 Acevue licability $8400,000 Accrue liabililing $6300,000. Acere liabililin 14 6700,000 Do not accrue liabiliday Accrue liability * 7200,000 Long term liability $1200,000 short term liability $ 11200,000 Total liabilities $23600,000 $ 33800,000 @ Ashich set of stands helps to movect that goal? goal? from case o U.S. GAAP rohotos the lowest total liabilities than IFRS. Therefore, US GAAP standards ret helps to meet that goal.