Harrington Company was sued by an employee in late 2017. General counsel concluded that there was an 90 percent probability that the company would lose the lawsuit. The range of possible loss is estimated to be $27,000 to $81,000, with no amount in the range more likely than any other. The lawsuit was settled in 2018, with Harrington making a payment of $61,000.

Assume that a U.S.-based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.

Required:

a. Prepare journal entries for this lawsuit for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.

• Record the entry for the litigation liability as per U.S. GAAP.
• Record the entry for the litigation liability as per IFRS.
• Record the entry for the settlement of litigation liability as per U.S. GAAP.
• Record the entry for the settlement of litigation as per IFRS.

b. Prepare the entry(ies) that Harrington would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.

• Record the conversion entry needed for 12/31/2017
• Record the conversion entry needed for 12/31/2018