Question

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Exercise 13-21 (Algo) Varlous transactions Involving contingencies [L013-5, 13-6] The following selected circumstances relate to pending lawsults for Erismus, Inc. Erismus's fiscal year ends on December 31. Financlal statements are Issued In March 2022. Erismus prepares its financial statements according to U.S. GAAP. Required: Indicate the amount Erismus would record as an asset, a liability or if no accrual would be necessary In the following circumstances. 1. Erismus is defending agalnst a lawsult. Erismus's management beleves the company has a slightly worse than 50/50 chance of eventually prevalling in court, and that If It loses, the Judgment will be $1,860,000. 2 Erismus is defending agalnst a lawsult. Erismus's management beleves It is probable that the company will lose In court. If It loses, management belileves that damages could fall anywhere in the range of $2,670,000 to $5,340,000, with any damage In that range equally likely. 3. Erismus is defending agalnst a lawsult. Erismus's management believes It is probable that the company will lose In court. If It loses, management belleves that damages will eventually be $5,350,000, with a present value of $3,745.000. 4. Erismus is a plaintiff In a lawsult. Erismus's management beleves It is probable that the company eventually will prevall in court, and that If it prevalls, the Judgment will be $1,860,000. 5. Erismus Is a plalntiff in a lawsult. Erismus's management believes It is virtually certaln that the company eventually will prevail in court, and that if It prevails, the Judgment will be $670,000. Classification Amount 1. 2. 3. 5.

Answer 1

Answer-

	Classification	Amount
1.	Not accrued Explanation:-Erismus would not recognize a liability.	-
2.	Liability Erismus would recognize a liability of $2,670,000, as it is probable Erismus will lose in court	$2,670,000
3.	Liability Erismus would recognize a liability of $5,350,000, as it is probable that it will lose the case	$5,350,000
4.	Not accrued This is a gain contingency.Contingencies that might result in gains are usually not reflected in accounts.	-
5.	Not accrued This is a gain contingency.Contingencies that might result in gains are usually not reflected in accounts.	-