HolmesWatson $($HW$)$ is considering what the effect would be of reporting its liabilities under IFRS rather than

U$.$S$.$ GAAP. The following facts apply:

a$.$ HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit,

management estimates it will need to pay a range of damages that falls between $$6,600,000$ and

$$11,600,000,$ with each amount in that range equally likely.

b$.$ HW is defending against another lawsuit that is identical to item $($a$),$ but the relevant losses will only occur

far into the future. The present values of the endpoints of the range are $$4,600,000$ and $$9,600,000,$ with

the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be

material.

c$.$ HW is defending against another lawsuit for which management believes HW has a slightly better than

$\frac{50}{50}$ chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a

range of damages that falls between $$4,600,000$ and $$10,600,000,$ with each amount in that range

equally likely.

d$.$ HW has $$11,600,000$ of short$-$term debt that it intends to refinance on a long$-$term basis. Soon after the

balance sheet date, but before issuance of the financial statements, HW obtained the financing

necessary to refinance the debt.

Required:

For each item, indicate how treatment of the amount would differ between U$.$S$.$ GAAP and IFRS.

Consider the total effect of items a$-$d$.$ If HW$\text{'}$s goal is to show the lowest total liabilities, which set of

standards, U$.$S$.$ GAAP or IFRS, best helps it meet that goal?

Complete this question by entering your answers in the tabs below.

For each item, indicate how treatment of the amount would differ between U$.$S$.$ GAAP and IFRS.

Note: For item d$,$ indicate the classification for U$.$S$.$ GAAP and IFRS.

Which set of standards help meet that goal?