Please give a short executive summary of your analysis. This should be less than one page in length and describe very briefly the conclusions of your analysis as well as the accounting standards that you refer to. Attachments are the analysis I wrote and the case detail.

ACC322 Writing Assignment Accounting for a Loss Contingency for a Verdict Overturned on Appeal M International (\"M\") and W Inc. (\"W,\" a competitor of M) have been engaged in long-standing litigation over a specific patent infringement matter. Below is a summary timeline of specific events that have taken place related to this matter: In May 2007, W filed a claim against M for patent infringement. For the year ended December 31, 2007, management of M determined that a loss for this matter was probable and represented that the estimate of loss was in the range of $15 million to $20 million, with $17 million being the most likely amount of loss within the range. A jury trial took place in September 2009. The jury reached a verdict on September 24, 2009, and a judgment was ordered in favor of W. The judgment required M to pay W $18.5 million. In November 2009, M filed a Notice of Appeal with the Court of Appeals. In December 2010, the Court of Appeals issued a ruling in favor of M's appeal and reversed the lower court's ruling on the matter. This meant that the Court of Appeals overturned the jury verdict and the $18.5 million judgment against M. On January 6, 2011, W filed a petition for a re-hearing before the same panel of appellate judges against the reversal of ruling by Court of Appeals. On February 10, 2011, the appellate judges declined the petition for a re-hearing. On February 28, 2011, management of M determined this matter was closed upon discussions with in-house legal counsel. Required: Question 1. For the year-end December 31, 2007, financial statements, what amount should M record as a liability? Alternative 1 Recognize and disclose $20 million. Alternative 2 Recognize $17 million and disclose $3 million. Alternative 3 Recognize $15 million and disclose $5 million. Applicable Professional Pronouncements 1. ASC 450-20-30-1 states: If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range shall be accrued. 2. SEC's view expressed in a speech during the 2004 AICPA National Conference on Current SEC and PCAOB Developments: Given these requirements, the recording of a material accrual for a contingent liability related to an event that occurred several years before should not be the first disclosure regarding that contingency. Rather, disclosures regarding the nature of the contingency and the amounts at stake should, in most cases, have already been provided. Disclosures should discuss the nature of the contingency and the possible range of losses for any item where the maximum reasonably possible loss is material. Vague or overly broad disclosures that speak merely to litigation, tax, or other risks in general, without providing any information about the specific kinds of loss contingencies being evaluated are not sufficient. Furthermore, I should point out that Statement 5 and Interpretation 14 [codified as ASC 450-20] require accrual for probable losses of the most likely amount of the loss. While the low end of a range of possible losses is the right number if no amount within the range is more likely than any other, I find it somewhat surprising how often \"zero\" is the recorded loss right up until a large settlement is announced. Question 2. For the year-end December 31, 2009, financial statements, should M adjust its liability? If so, what amount should be recorded; and should the amount of the adjustment be considered a 2009 event or a prior period adjustment? Alternative 1 Yes. Accrue an incremental liability of $1.5 million for the year ended December 31, 2009. Alternative 2 Yes. Accrue an incremental liability of $1.5 million as a prior period adjustment. Applicable Professional Pronouncements ASC 450-20-25-7: If a loss cannot be accrued in the period when it is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonably estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments. Question 3. Should M record the reduction of the previously recorded loss contingency in 2010 (upon the Court of Appeals overturning the verdict of the jury) or 2011 (once the appellate judges declined W's petition for a re-hearing)? Alternative 1 Reduce the amount of the loss contingency in 2011 upon the appellate judges decision to decline W's petition for a re-hearing. Alternative 2 Reduce the amount of loss contingency in 2010 upon the Court of Appeals overturning the verdict of the jury. Applicable Professional Pronouncements 1. ASC 410-30-30-1: At the early stages of the remediation process, environmental remediation liabilities are not easily quantified, due in part to their uncertainties. As a practical matter, the range of an estimated remediation liability will be defined and refined as events in the remediation process occur. The environmental remediation liability recorded by an entity should be based on that entity's estimate of its allocable share of the joint and several remediation liabilities. 2. ASC 410-30-35-1: Changes in estimates of the entity's remediation liability, including revisions to the entity's estimate of its share of the liability due to negotiation or identification of other potentially responsible parties, shall be accounted for as changes in estimates. Question 1- Trinh Nguyen For the year-end December 31, 2007, M should recognize $17 million and disclose $3 million which is alternative 2. According to ASC 450-20-30-1, if some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range shall be accrued. Alternative 3- Recognize $15 million and disclose $5 million- is true in case we cannot estimate the amount within the range. In this case, our best estimate is $17 million so we have to choose $17 million to disclose. Alternative 1- Recognize and disclose $20 million is not appropriate since it does not meet any criteria of the ASC above. However, consider that the amount in all three alternatives equal $20 million which means that company anticipates the amount of loss might be $20 million, but they are unsure about this. Therefore, it isn't incorrect if company accrue $20 million. Nevertheless, we still have to follow ASC. In addition, ASC 450 states that \"If there is at least a reasonable possibility that a loss in excess of the amount recognized exists, the company is required to disclose an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made.\" As a result, M is allowed to disclose $3 million which is an estimate amount of loss in excess of amount recognized. In conclusion, Alternative 2 is the best alternative. Question 2 - Huyen Vu For the financial statement from year end December 31, 2009, M should adjust its liability as in November 2009 as M had filed a notice of appeal with the Court of Appeals against the verdict of September 24, 2009. M should record an additional liability of $1.5 million along with $17 million. The amount of the adjustment should be considered a 2009 event. According to ASC 450-20-25-7, if a loss cannot be accrued in the period when it is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonably estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. It means that FASB 450-20-50-3 through 50-8 requires disclosure of additional exposure to loss if there is a reasonable possibility that there are additional amounts to be paid. The liability should be explained in notes in financial statements for the increase in liability amount in total of $18.5 million. Question 3 - Yingwen Ye M should record the reduction of the previously recorded loss contingency in 2011 upon the appellate judge's decision to decline W's petition for a re-hearing. ASC 410-30-30-1 states \"at the early stages of the remediation process, environmental remediation liabilities are not easily quantified, due in part to their uncertainties. As a practical matter, the range of an estimated remediation liability will be defined and refined as events in the remediation process occur.\" Similarly, in December 2010, the Court of Appeal overturned W's appeal along with the $18.5 million judgment against M. However, the case didn't end there and was carried into the next year. It was possible that M still had to pay for the $18.5 million if W succeeded in re-hearing, so M shouldn't record reduction in 2010. We can reject alternative 2 for this reason. According to ASC 410-30-30-1, \"the environmental remediation liability recorded by an entity should be based on that entity's estimate of its allocable share of the joint and several remediation liabilities.\" In February 2011, M was confident that the court case was coming to an end and knew what the full amount reduction should be. Therefore, M should record the reduction in 2011