At December 31, 2015, Layla’s Design Company received legal advice from an outside advisor that it...

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Accounting

At December 31, 2015, Layla’s Design Company received legaladvice from an outside advisor that it was 75% probable that thecompany would be found liable in a lawsuit related to fabric usedin a spring 2014 dress collection. A range of damages in the amountof $250,000 to $300,000 was equally likely. Under U.S. GAAP, shouldLayla’s Design Company recognize a provision for damages? If so,please record the journal entry below.
________________ $
_ $
Description of the journalentry:__________________________
Would your answer be different under IFRS? YES NO (circleone)
If yes, what would be the journal entry?
$
_ $
Please explain how a decline in probability from 75% to 60%would make a difference in your analysis.______________________________________________________________________________________________________________________________________________________________

Answer & Explanation Solved by verified expert

4.3 Ratings (596 Votes)

Under US GAAP An estimated loss from a loss contingency is recognized only if the available information indicates that 1 it is probable that an asset has been impaired or a liability has been incurred at the reporting date and 2 See Answer

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