Prepare a memo that summarizes relevant professional standards (standard and paragraph should be cited) related to each of the 6 issues and prepare any proposed journal entries. Discuss information that would be included in any note disclosures related to each of the six items (you need not draft formal note disclosures). Prepare entries for all misstatements you identify, regardless of the amount involved. That is, dont simply say no entry is needed because any amount involved would be immaterial. Assume current income is $1,323,839. Ignore income tax implications, for purposes of preparing journal entries, as any changes in taxes will be reflected later in the audit process after any entries have been posted to the working trial balance.

Issue 6: Bring Your Children to Work Day Litigation

On Bring Your Children to Work Day at Wing Corporation, Susan Gills, a Wing employee, brought her ten-year-old daughter to work. ACE was installing Wings new computer system on that day. After installation, when Susan attempted to adjust the monitor connected to her new computer, she inadvertently knocked the monitor off the desk and onto the floor. The screen shattered causing a shard of glass to strike the childs toe resulting in four stitches. Susan has blamed the installer, ACE, for placing the monitor in a dangerous position near the back edge of her desk. The damages to this point have been minimal as Susan drove her child to their physician and paid the $20 copay for an office visit. Yet, the Gills family has sued ACE for the following:

Likely future plastic surgery Emotional distress to Child Emotional distress to Susan

Total

$ 5,000 500,000 1,200,000 $1,705,000

ACEs lawyers believe that this case, with the possible exception of the plastic surgery (for which the HMO wont pay), is frivolous. ACE has no insurance to cover this sort of liability. If this case goes to court, ACEs on staff attorneys will handle the case. To eliminate any possible bad press from this case, ACEs lawyers suggested settling for a nuisance value of $10,000. The family rejected this offer out of hand and asked for $200,000 to settle this out of court. ACE has decided, at least at this point, to refuse any further settlement offer.

In the lawyers letter to you, ACEs lawyers indicated that they believe that ACE has just and meritorious defense available to fight this case. Furthermore, ACEs legal counsel for the case indicated that while she agrees that this case is largely frivolous, litigation involving a young child is somewhat of a gamble and that making a definite prediction on the outcome of the case is impossible. In the end she believes the judgment will likely be $5,000 for the plastic surgery. What entry or disclosure, if any, is necessary in this circumstance?