Question
1. Button Entity was sued for issuing flawed buttons. In 20x1, Buttons attorneys felt that the probability of losing the claim and having to make
1. Button Entity was sued for issuing flawed buttons. In 20x1, Buttons attorneys felt that the probability of losing the claim and having to make restitution was remote. In 20x2 the attorney reevaluated and the probability went from remote to possible, but not all that likely. In 20x3 it was determined to be more likely than not that Button would be required to make restitution. In 20x4 it was virtually certain and in 20x5 Button Company paid $200,000 to settle the claim. In what year should Button recognize a provision?
a. 20x1
b. 20x2
c. 20x3
d. 20x4
e. 20x5
Please explain your reasoning.
2. Glassware entity is facing a claim that would require them to pay $1,000,000. Management determines that there is a 25% chance that they will be required to pay nothing and a 75% chance that they will have to pay the entire $1,000,000. What amount would Glassware recognize as a provision relating to this claim?
a. $0
b. $250,000
c. $750,000
d. $1,000,000
Please explain your reasoning.
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