Your company has just been names in as a defendant in a lawsuit because of an accident. The plaintiff is suing for $400,000 in damages.

You have contacted legal counsel and the attorneys have advised your company that the loss could range from $50,000 to $350,000 and no amount in the range is more likely than any other amount in the range. The attorney said the lawsuit will not come up in court until next year about April.

Draft a brief accounting memo and an email to the CEO using the FASB codification as guidance to answer the following:

1. In general, how does a company account for these kind of losses?

2. Explain whether a loss should be accrued and if so for what amount?

3. Any disclosures that are required. 

 

Part 2

The Great Outdoors operates a lodge, water park and golf course. The lodge is very family friendly and gets most of its business in the summer and fall. The lodge must pay an upfront fee of $1 million to be used in the capital improvements of the lodge. Then, the Great Outdoors must remit 10% of all gross sales to the landlord.

The Great Outdoors operates a golf course and sells each customer a punch card for $1,000 to purchase a 10-pack (10-rounds of golf). The punch cards have no expiration date and were for sale beginning June 1^st. The waterpark operates from June 1 through August 31.

Each customer purchase season passes for $240 that gives them unlimited access. 

1. Evaluate the proper accounting and framework and determine what type of contract is this? How does this impact your evaluation for whether the contract is a lease or how revenue should be recognized? 

2. Apply the new revenue recognition 5 step process to the sale of the golf punch cards. Don't forget to show journal entries along with your guidance?

3. Apply the new revenue recognition 5 step process to the sale of the waterpark season passes?