3.(TCO D) Below are three independent situations.

- In August, 2010, a worker was injured in the factory in an accident partially as the result of his own negligence. The worker has sued Wesley Co. for $800,000.Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.

- A suit for breach of contract seeking damages of $2,400,000 was filed by an author against Greer Co. on October 4, 2010. Greer's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $600,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount.

- Quinn is involved in a pending court case. Their lawyers believe it is probable that Quinn will be awarded damages of $1,000,000.

Instructions:

Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.

(TCO D) On January 2, Year 1 the Lyndhurst Company,Inc. a privately-held company, issued $1,000,000, five year , 10.00% bonds, dated January 2, Year 1. The bonds provided for semi-annual interest payments to be made on June 30 and December 31 each year. Terms of the bond indenture allowed the company to call the bonds at 102 after one year. The bonds were issued when the market interest rate was 8.00%. Lyndhurst uses the effective interest method for amortizing bond discounts and premium The bonds are term bonds that mature on December 31, Year 5. Lyndhursts fiscal year for financial reporting purposes is December 31. The company called the bonds at 102 on June 30, Year 2 Lyndhurst called its 10.00%, $1,000,000 bonds on June 30, Year 2, paying bondholders the 102 call price. On that date, the bonds had a carrying value of $1,060,016. Compute the gain or loss to Lyndhurst Company on reacquisition of bonds on June 30, Year 2 and record the appropriate journal entry