Theresa Lincoln is a Lakes employee, and Knight is a local CPA company. The company has awarded workers a year-end bonus equivalent to the wage of two weeks during the last 10 years. On 15 November, the management team of the company declared no yearly bonus this year. 

Due to the company's lengthy history of granting a prize at year-end, Theresa and her colleagues had grown to anticipate the prize and thought that Lakes and Knight broke tacit agreement by stopping the prize. Theresa so determined that she would compensate for the missed incentive by working six more hours a week for the remainder of the year. The policy of Lakes and Knight is to pay overtime at 150% direct. 

The Supervisor of Theresa was startled to hear that overtime was being recorded since at the end of the following year there are normally very little or no extra customer service requirements. The overtime was not disputed, however, since staff record their working hours on the "honor system." 

Does Lakes and Knight ethically behave by removing the bonus? Explain your reply. Does Theresa behave ethically by compensating the bonus for excessive overtime? Why? Why? In each of the following scenarios, establish whether (a) a liability report should be included in the balance sheet, (b) a contingent liability disclosed in footnotes or (c) not reported. Justify your findings by citing statements from applicable standards.  

1. A car firm is introducing a new vehicle. Previous history shows that proceedings will be initiated once the new model is involved in accidents. The Company can rest assured that at minimum one verdict will award penalties to wounded persons in an accident, but cannot anticipate the extent of any payment.

2. The research scientist discovers that the best-selling product of the firm may infringe on the patent of another firm. If the other corporation learns the offense and the suit of files, which is improbable, it might lose millions. 

3. Your firm has contaminated a natural lake as part of the land development for a new home project. Under state legislation, after you have finished developing, you must tidy up the lake. It will take five to eight years to finish the development project. Current estimates show that cleaning up the lake will cost $3 million. 

4. Your organization has recently been informed that a client has been sued. The likelihood of client winning is considered likely, but the amount of damages cannot be properly calculated. 5. The quality of a large construction project is unsatisfactory for a significant client. The corporation feels the consumer is unreasonable, but has chosen to restore $250,000 next year in goodwill. You're astonished to find the SSGroup from your state's online lottery organization knocking on your front door after having heard a knock. You discover you have won the $12.5 million jackpot when you unlock your door. You learn that you have three options: (1) get $1.25 million every year for the next ten years, (2) get $10 million immediately, or (3) get $4 million now plus $1 million per year for the following eight years. 

Your lawyer informs you that a ten percent yearly return on investment is a realistic expectation. Which alternative do you prefer, with all other factors being equal? What elements play a part in your decision-making process?