Need help with Question 2

The information provided below describes litigations and potential claims or assessments in which M Company is a defendant as of December 31, 2015 and December 31, 2016. The litigation information is Pared for this class for instructional numnoses and it does not necessarily reflect the final resolution of the litigations or claims. Type 1 m 2015, M Company was named in approximately 30 personal injury lawsuits filed on behalf of approximately 750 persons in state courts in St. Louis, Missouri and Los Angeles, California. Plaintiffs claimed they were injured by PCBs manufactured by P. Inc.'s (our subsidiary's) chemical business over four decades ago and incorporated into products made, used and sometimes disposed of by others. As of December 31, 2015, analyses of the matter by internal and outside counsel indicated that it is probable that a judgment may be reached against M Company. The potential damage that could be paid should a judgment be reached is not definite in amount. However, our experience and analyses show that the amount of the damage could be at least $295 million, but it will not be more than $330 million. When this determination was made on December 30, 2015, there was no better estimate within the range. On September 22, 2016, the parties (M Company and the Plaintiffs) reached an agreement to settle these personal injury lawsuits pursuant to which the company is required to pay up to $280 million into a settlement fund, with the settlement and the final payment amount contingent upon the level of claimant participation. On December 8, 2016, the first and second claimant participation levels were met, and the company paid $275 million into the settlement fund. In February, June and September 2017, pro rata portions of the final claimant participation level were met, and payments totaling approximately $4 million were made. Type II As of Dec. 31, 2016, the company has also been named in lawsuits brought by various governmental entities claiming that M Company, P, Inc. (our subsidiary) and S Company (our other subsidiary), collectively as a manufacturer of PCBs, should be responsible for a variety of damages due to PCBs in bodies of water, regardless of how PCBs came to be located there. The company believes that it is reasonably possible that some of these novel claims may have merit even though M Company is vigorously defending the cases on legal and factual grounds. The amount of the potential damage (i.e., potential payment) that M Company may have to pay in relation to these lawsuits would be in the range of S100 million to $125 million. There was no better estimate within the range. Type III: As of December 31, 2016, the company is defending lawsuits in various state and federal courts, in which approximately 3,100 plaintiffs claim to have been injured by exposure to glyphosate-based products manufactured by the company. The majority of plaintiffs have brought actions in state courts in Missouri, Delaware and California, while the remainder of plaintiffs' cases were filed in many different federal courts. In October 2016, the Judicial Panel on Multi-District Litigation transferred to the Northern District of California all of the federal cases for pretrial purposes. The company believes that it has meritorious factual and legal defenses to these cases and is vigorously defending them. You may divide your response into issues and provide your analyses and responses. For each issue and requirement, please summarize the fact pattern, cite the authoritative source, and cogently support your response in one paragraph or more. No point will be assigned for writing down a single amount or a single date or unstructured sentences. Nor will there be points for writing incomplete sentences or even complete sentences that do not follow the prescribed technical memorandum format. Your response must address the specific requirements IN THIS CASE in the order the requirements are placed. Any other response based on any other assumed format or order is not acceptable. At a minimum, your work should include - in standard business English - the fact pattern related to each requirement; the relevant topic, subtopic, section and paragraph from the ASC; application of the codification to the situation; the effect(s) of your suggestion to income measurement and financial position of the company. The following issues should be explicitly addressed in the technical memorandum. 1. For the year ended December 31, 2015 or December 31, 2016 (or at the end of the year), should the company recognize liability and/or losses for the lawsuit or lawsuits in which M Company is a party during that year? If the company is to recognize amounts, what are the ORIGINAL journal entries that should be made to initially recognize the loss/liability? If the company is to recognize amounts, what are the SUBSEQUENT journal entries that should be made to recognize the actual amount of loss/liability? If the company is to recognize amounts, what are the SUBSEQUENT journal entries that should be made when payments are made? 2. If the company is to recognize amounts, which financial statement(s) is/are affected? If the company is to recognize amounts, which financial statement(s) sections are affected? If the company is to recognize amounts, what are the effects on performance, cash flows, and financial position of M Company? 3. If the company is to recognize amounts, which metrics (e.g. net income, total assets, total liabilities, current ratio, etc.) are affected for the year ended Dec 31, 2015 or as of Dec 31, 2015? If the company is to recognize amounts, which metrics (e.g. net income, total assets, total liabilities, current ratio, etc.) are affected for the year ended Dec 31, 2016 or as of Dec 31, 2016? 4. In the notes to financial statements for the period covering the year-end December 31, 2015 (or for the period covering the year-end December 31, 2016), what are the disclosures that should be, if any