REV Co, is reviewing the accounting and disclosure requirements for its significant guarantees, commitments, and contingencies, including litigation, as of December 31, year 3 The financial statements are expected to be available to be issued on February 10, year 4 Determine the amount, if any, to recognize and whether disclosure is required in REVs financial statements as of and for the year ended December 31, year 3 Unless otherwise specified, assume that no amounts related to these guarantees, commitments, and contingency including litigation, have been recognized in the financial statements, as of December 31, year 3 Letter from outside legal counsel to REV Co general counsel A B, LLP 100 New Street Boston MA, 02125 January 31, year 4 General counsel, REV Co The following is an update on the four matters for which we were retained to represent REV Co REV is a defendant in a $6,000,000 copyright infringement lawsuit brought by Beech Co in October, year 3 REV has offered $1,500,000 to settle the lawsuit, but Beech made a counteroffer of $5,000,000 The case is not expected to go to trial, and we believe that a loss is probable As of the date of this letter, negotiations are ongoing Although we cannot determine the exact amount of loss, we believe that a reasonable estimate of the loss is between $2,000,000 and $5,000,000 No amount within the range is a more likely outcome than any other amount On September 15, year 3, a $6,500,000 product liability lawsuit was brought against REV by a customer who sustained injuries while using one of REV's products As of the date of this letter, we have completed our initial discovery and believe that the lawsuit is without merit Given that the lawsuit lacks merit, we believe that the possibility that REV will be required to pay any amount to settle the lawsuit is remote On October 15, year 3, one of REV's facilities sustained significant water damage At your request, we contacted the property insurance carrier to check on the status of the $2,500,000 claim that REV filed on November 1 5, year 3 On December 27, year 3, the property insurance carrier acknowledged that the losses appear to be covered by the insurance policy However, the property insurance carrier stated that its adjuster is still reviewing the claim and does not expect to settle it until March, year 4 The property insurance carrier further indicated that any payment is subject to the $125,000 deductible included in the property insurance policy On November 28, year 3, the State Health and Safety Agency completed an inspection of REV's production facility, noting several safety violations Based on our review of the agency's findings, we believe that REV will be subject to a penalty of up to $l75,000 Sincerely, A Smith, Lead counsel, A B, LLP Letter from State Health and Safety Agency State Health and Safety Agency 1000 Main Street Boston, MA 02125 February 5, year 4 REV co 45 Cherry Road Boston, MA 02125 REV co This letter serves as notice that you are being assessed a fine of $150,000 related to violations of state health and safety codes that were identified on November 28, year 3, at your manufacturing facility located at 85 Elm street, Boston, MA 02125 Our follow up inspection on December 15, year 3, indicated that the violations were appropriately remediated, and there were no outstanding code violations at that time Sincerely, State Health and Safety Agency Requirements a) What is the rule regarding initial measurement of loss contingency specified in Accounting Standard Codification 450 20 30 1 If you want to access the FASB Codification system, please use the following link http aaahq org Research FASB GARS Username and password are as follows Username AAA51789 Password B3W6xYt b) For each of REVs contingency including litigation, in the table below Indicate whether disclosure is required using Yes or No Enter the asset or liability balance, any, that should be recognized as of December 31, year 3 Enter asset balances as positive whole dollars and liability balances as negative whole dollars If no recognition is required, enter a zero (0) Financial statement note disclosure required for year 3 Asset (liability) balance as of December 31, year 3 Copyright infringement Product liability lawsuit Property insurance claim Penalty from State Health and Safety Agency

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 12, 2021

REV Co, is reviewing the accounting and disclosure requirements for its significant guarantees, commitments, and contingencies, including litigation, as of December 31, year 3. The

REV Co, is reviewing the accounting and disclosure requirements for its significant guarantees, commitments, and contingencies, including litigation, as of December 31, year 3. The financial statements are expected to be available to be issued on February 10, year 4.

Determine the amount, if any, to recognize and whether disclosure is required in REV’s financial statements as of and for the year ended December 31, year 3. Unless otherwise specified, assume that no amounts related to these guarantees, commitments, and contingency including litigation, have been recognized in the financial statements, as of December 31, year 3.

Letter from outside legal counsel to REV Co. general counsel

A&B, LLP

100 New Street

Boston MA, 02125

January 31, year 4

General counsel, REV Co..

The following is an update on the four matters for which we were retained to represent REV Co.:

REV is a defendant in a $6,000,000 copyright infringement lawsuit brought by Beech Co. in October, year 3. REV has offered $1,500,000 to settle the lawsuit, but Beech made a counteroffer of $5,000,000. The case is not expected to go to trial, and we believe that a loss is probable. As of the date of this letter, negotiations are ongoing. Although we cannot determine the exact amount of loss, we believe that a reasonable estimate of the loss is between $2,000,000 and $5,000,000. No amount within the range is a more likely outcome than any other amount.
On September 15, year 3, a $6,500,000 product liability lawsuit was brought against REV by a customer who sustained injuries while using one of REV's products. As of the date of this letter, we have completed our initial discovery and believe that the lawsuit is without merit. Given that the lawsuit lacks merit, we believe that the possibility that REV will be required to pay any amount to settle the lawsuit is remote.
On October 15, year 3, one of REV's facilities sustained significant water damage. At your request, we contacted the property insurance carrier to check on the status of the $2,500,000 claim that REV filed on November 1 5, year 3. On December 27, year 3, the property insurance carrier acknowledged that the losses appear to be covered by the insurance policy. However, the property insurance carrier stated that its adjuster is still reviewing the claim and does not expect to settle it until March, year 4. The property insurance carrier further indicated that any payment is subject to the $125,000 deductible included in the property insurance policy.
On November 28, year 3, the State Health and Safety Agency completed an inspection of REV's production facility, noting several safety violations. Based on our review of the agency's findings, we believe that REV will be subject to a penalty of up to $l75,000.

Sincerely,

A. Smith, Lead counsel, A&B, LLP

Letter from State Health and Safety Agency

State Health and Safety Agency

1000 Main Street

Boston, MA 02125

February 5, year 4

REV co.

45 Cherry Road

Boston, MA 02125

REV co.:

This letter serves as notice that you are being assessed a fine of $150,000 related to violations of state health and safety codes that were identified on November 28, year 3, at your manufacturing facility located at 85 Elm street, Boston, MA 02125.

Our follow-up inspection on December 15, year 3, indicated that the violations were appropriately remediated, and there were no outstanding code violations at that time.

Sincerely,

State Health and Safety Agency

Requirements:

a) What is the rule regarding initial measurement of loss contingency specified in Accounting Standard Codification 450-20-30-1?

If you want to access the FASB Codification system, please use the following link:

http://aaahq.org/Research/FASB-GARS

Username and password are as follows:

Username - AAA51789

Password - B3W6xYt

b) For each of REV’s contingency including litigation, in the table below:

• Indicate whether disclosure is required using “Yes” or “No”.

• Enter the asset or liability balance, any, that should be recognized as of December 31,

year 3. Enter asset balances as positive whole dollars and liability balances as negative whole dollars. If no recognition is required, enter a zero (0).

	Financial statement note disclosure required for year 3	Asset (liability) balance as of December 31, year 3
Copyright infringement
Product liability lawsuit
Property insurance claim
Penalty from State Health and Safety Agency