Wulai Company is facing the following situations, and the owner of the company needs your help in identify the accounting treatment:
1. A customer sued Wulai for selling a defective product. The time that the customer took to fix the defective product caused the customer's company productivity loss, which was estimated around $30,000. Wulai claimed that the product was not defective, but was misused by the customer. Wulai’s lawyer is confident that
2. A competitor sued Wulai for infringing their patent for one of Wulai's best-selling smart phones. The court has awarded the plantiff $1 million. The owner of Wulai is appealing the case and believes that the company will win the lawsuit, but the lawyers believe that it could lose the appeal.
Requirements
Determine the appropriate accounting treatment. Based on your analysis, identify whether the company should (1) recognize a provision, (2) disclose a provision liability, or (3) determine no disclosure is required.