Problem C, Contingencies Z Corp. filed a claim for patentinfringement against M Corp. in October 2020. In preparing itsfinancial statements for the year ending December 31, 2020, M Corp.financial accounting group obtained the following informationrelated to this claim:
• M Corp’s Risk Management Department believes that M will incura loss from this lawsuit. They estimate the loss will be in a rangefrom $15 million to $20 million, but cannot give a more preciseestimate.
• The trial will likely not take place for two years, in 2022 or2023.
• M Corp’s CFO insists that the company will fight this claim“until the end of time.” Based on that, the CFO maintains that noloss need be recorded because none will be incurred … ever!
• M Corp’s legal department believes the case will be resolvedwithin four years, if appeals are necessary. They agree with RiskManagement’s assessment.
Your Assignment Assume that you are the Controller of M Corp(you are the top accounting officer and report directly to theCFO). What do you say to the CFO about this matter? You mustresolve this issue now so that financial statements can beprepared. You can literally write what you would say, or you can doit in the form of a brief message. But you must state your opinionon how this should be handled (not forgetting that your boss thinksnothing needs to be done). And it must be brief (the CFO does notlike to read long messages … get to the point!)
