Acc 551 Week 3 Project Requirements

551

Week 3 Project

Requirements

The items 1 through 6 below represent various commitments and contingencies of Martin Inc. at December 31, 2011 and events subsequent to December 31, 2011, but prior to the issuance of the 2011 financial statements. Martin Inc. is preparing its financial statements for the year ended December 31, 2011.

1. On December 1, 2011, Martin was awarded damages of $75,000 in a patent infringement suit it brought against a competitor. The defendant did not appeal the verdict, and payment was received in January 2012.

FASB Codification 605-10-25 –

The recognition of revenue and gains of an entity during a period involves consideration of the following two factors, with sometimes one and sometimes the other being the more important consideration:

Being realized or realizable. Revenue and gains generally are not recognized until realized or realizable. Paragraph 83(a) of FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, states that revenue and gains are realized when products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash. That paragraph states that revenue and gains are realizable when related assets received or held are readily convertible to known amounts of cash or claims to cash.

This item should be accrued as accrued revenue.

2. A former employee of Martin has brought a wrongful-dismissal suit against Martin. Martin’s lawyers believe the suit to be without merit.

FASB Codification 450-20-25-2 –

An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:

Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial...