In 2013, Slim Drug Company began to notice problems with its obesity drug. The company stopped...

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In 2013, Slim Drug Company began to notice problems with itsobesity drug. The company stopped selling the drug near the end of2013. In the last six months of 2014, the company was sued by 1,000people who had an allergic reaction to the company’s obesity drug.At the end of 2014, the company’s lawyers believe there is a 60%chance the company will need to make payments in the range of$1,000 to $5,000 to settle each claim. At the end of 2015 whilenone of the cases have been resolved, the company’s lawyers nowbelieve there is an 80% chance the company will need to makepayments in the range of $2,000 to $7,000 to settle each claim. In2016, 400 claims were settled at a total cost of $1.2 million.Based on this experience, the company believes 30% of the remainingcases will be settled for $3,000 each, 50% will be settled for$5,000 and 20% will be settled for $10,000 each.
Required: Using AASB Standards, show what journal entries wouldbe required in 2013, 2014, 2015 and 2016.

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2013 No entries 2014 The midpoint of the range of 1 000 to 5 000 is 3 000 The midpoint of 3 000 multiplied by 1 000 people making claims equals 3 000 000 Debit Litigation expense 3 000 000 Credit Legal See Answer

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In 2013, Slim Drug Company began to notice problems with itsobesity drug. The company stopped selling the drug near the end of2013. In the last six months of 2014, the company was sued by 1,000people who had an allergic reaction to the company’s obesity drug.At the end of 2014, the company’s lawyers believe there is a 60%chance the company will need to make payments in the range of$1,000 to $5,000 to settle each claim. At the end of 2015 whilenone of the cases have been resolved, the company’s lawyers nowbelieve there is an 80% chance the company will need to makepayments in the range of $2,000 to $7,000 to settle each claim. In2016, 400 claims were settled at a total cost of $1.2 million.Based on this experience, the company believes 30% of the remainingcases will be settled for $3,000 each, 50% will be settled for$5,000 and 20% will be settled for $10,000 each.Required: Using AASB Standards, show what journal entries wouldbe required in 2013, 2014, 2015 and 2016.