Question 1 Stark Industries Lid (SI) is in the business of producing and selling fitness products and equipment. Its financial year end date is 31 of December. In the financial year 2015, SI was involved in the following lawsuits: Case A: In early December 2015, SI was sued by a customer, Dr. Bruce Banner as a result of an unintended effect of one of its products named Hulk, a type of fitness supplement that was meant to enhance the growth of the muscles. Dr. Banner claimed that after taking Hulk, his skin had gradually turned into a strange shade of green. He asked for a compensation of $500,000 plus any legal fees incurred. Mr. Tony Stark, CEO of SI, consulted with his attorney, Ms. Pepper Potts and estimated that there was a 20% probability that Dr. Banner would accept a settlement offer of $200,000. If Dr. Banner declined the settlement offer, then there was a 10% probability that SI would have to pay the amount required by Dr. Banner plus any legal fees incured, an 80% probability that they would pay $250,000 plus legal fees incurred, and a 10% probability that they would pay $100,000 plus legal fees. The legal fees that Dr. Banner had incurred were $50,000. SI had an insurance policy against customer lawsuits. Ms. Potts estimated that for this case, there was a 70% chance that the insurance company would agree to reimburse the compensation paid by SI, and a 30% chance that the company would decline any reimbursement claim. As at 31 December 2015, SI was still waiting for Dr. Banner's response on the settlement offer. If Dr. Banner declines the offer, the court trial will be held in early 2016. Case B: On 15 December 2015, SI filed a lawsuit against a former employee, Bucky Barnes for illegally using the experiment results that he obtained while working at SI for development of his own product. Ms. Potts estimates that there is a 50% probability that Stark Industries would win the lawsuit and get a compensation of $300,000. The lawsuit is still pending as at the end of 2015. Case C: SI's customer S.H.I.E.L.D Ltd (SHL), a fitness equipment retailer, sued SI on 15 March 2015 for defective exercise equipment produced. Ms. Potts at the time believed that the claim made by SHL was highly controversial and therefore it was difficult to estimate the result of the lawsuit. On 2 December 2015, however, the court trial was over and SI paid SHL $600,000. Other events that SI encountered during the financial year 2015 are as follows: Case D: On 21 June 2015, SI ordered 1,000 units of metal parts from Asgard Lid (Asgard) for one of its fitness equipment products, Hammer. The contract price was $100 per unit. On 15 August 2015, the market price of the metal parts fell to $80 per unit. Mr. Stark called Mr. Thor, CEO of Asgard, and persuaded him to adjust the contract price to $90 successfully. The metal parts were then delivered to SI on 15 November 2015
