HolmesWatson (HW) is considering what the effect would be ofreporting its liabilities under IFRS rather than U.S. GAAP. Thefollowing facts apply:

1. HW is defending against a lawsuit and believes it is virtuallycertain to lose in court. If it loses the lawsuit, managementestimates it will need to pay a range of damages that falls between$5,000,000 and $10,000,000, with each amount in that range equallylikely.
2. HW is defending against another lawsuit that is identical toitem (a), but the relevant losses will only occur far into thefuture. The present values of the endpoints of the range are$3,000,000 and $8,000,000, with the timing of cash flow somewhatuncertain. HW considers these effects of the time value of money tobe material.
3. HW is defending against another lawsuit for which managementbelieves HW has a slightly better than 50/50 chance of losing incourt. If it loses the lawsuit, management estimates HW will needto pay a range of damages that falls between $3,000,000 and$9,000,000, with each amount in that range equally likely.
4. HW has $10,000,000 of short-term debt that it intends torefinance on a long-term basis. Soon after the balance sheet date,but before issuance of the financial statements, HW obtained thefinancing necessary to refinance the debt.

   
Required:
1. For each item, indicate how treatment of theamount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’sgoal is to show the lowest total liabilities, which set ofstandards, U.S. GAAP or IFRS, best helps it meet that goal?
  

1.

	U.S. GAAP		IFRS
A	ACCRUE LIABILITY	?????	ACCRUE LIABILITY	?????
B	ACCRUE LIABILITY	?????	ACCRUE LIABILITY	?????
C	DO NOT ACCRUE LIABILITY	?????	ACCRUE LIABILITY	?????
D	LONG TERM LIABILITY	?????	SHORT TERM LIABILITY	?????
	TOTAL LIABILITIES

2. Consider the total effect of items a–d. If HW’s goal is toshow the lowest total liabilities, which set of standards, U.S.GAAP or IFRS, best helps it meet that goal?

A.U.S. GAAP. B.IFRS. C. BOTH ARE THE SAME