Question
Cyan Corporation is a manufacturer of paints and specialty coatings. In March 2020, Beck Inc. filed a lawsuit against Cyan Corporation for alleged patent infringement,
Cyan Corporation is a manufacturer of paints and specialty coatings. In March 2020, Beck Inc. filed a lawsuit against Cyan Corporation for alleged patent infringement, claiming $1.1 million in damages. Cyans lawyer disputed the claim, but in December 2020, Cyans lawyer informed management that Cyan will likely lose the dispute and have to pay between $900,000 and $1.1 million. Dissatisfied with this estimate and its potential impact on 2020 net income, Cyans management sought a second legal opinion in December 2020. The lawyer who provided the second opinion suggested that Cyan will likely have to pay between $400,000 and $600,000. In its financial statements for the year ended December 31, 2020, Cyan recorded a provision for a loss on the lawsuit and a liability in the amount of $500,000. Answer the following questions based only on the information provided. (a) Does Cyan have high-quality earnings? (b) Will the earnings reported by Cyan be discounted in the capital markets?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started