On December 4, 2016, Dan Johnson, delivery truck driver for Farmers Products Inc., ran a stop sign and collided with another vehicle. On January 8, 2017, the driver of the other vehicle filed suit against Farmers Products for damages to the vehicle. Estimated damages to this vehicle were between $6,000 and $10,000 with no amount within the range more likely than any other amount. Farmers Products issued its 2016 financial statements on March 3, 2017.

Required:

1. Prepare the disclosures and/or journal entries Farmers Products should make in preparing its December 31, 2016, financial statements.2. If Farmers Products used IFRS, how would the disclosures and/or journal entries differ from those under U.S. GAAP?

CHART OF ACCOUNTS

Farmers Products Inc.

General Ledger

ASSETS

111Cash

121Accounts Receivable

141Inventory

152Prepaid Insurance

181Equipment

189Accumulated Depreciation

LIABILITIES

211Accounts Payable

231Salaries Payable

245Estimated Liability from Lawsuit

250Unearned Revenue

261Income Taxes Payable

EQUITY

311Common Stock

331Retained Earnings

REVENUE

411Sales Revenue

EXPENSES

500Cost of Goods Sold

511Insurance Expense

512Utilities Expense

521Salaries Expense

532Bad Debt Expense

540Interest Expense

541Depreciation Expense

559Miscellaneous Expenses

562Loss from Litigation

910Income Tax Expense

Which of the following criteria is used to determine how Farmers Products discloses the law suit?Check all that apply.

it is probable that Farmers Products will suffer a loss from Johnson's accident

the amount can be reasonably estimated

the accident occurred prior to the date of the financial statements

the drivers have liability insurance