Fasb Essay

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1. For the year-end December 31, 2007, financial statement, what amount should M record as a liability? According to FASB 450-20-25-1, when a loss contingency exists, the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability can range from probable to remote. An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met a. Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statement. b. The amount of loss can be reasonably estimated. (FASB 450-20-25-2) In the case it states that management of M determined that a loss was in the range of $15 million to $20 million, with $17 million being the most likely amount of loss within the range. FASB states that if some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued (FASB 450-20-30-1). Therefore, M should record a liability in the amount of $17 million. 2. For the year- end December 31, 2009, financial statements, should M adjust its liability? If so, what amount should be recorded; and should the amount of the adjustment be considered a 2009 event or a prior period adjustment? For the year- end December 31, 2009, financial statement M should adjust its liability to $18.5 million FASB 450-20-50-3 through 50-8 required disclosure of additional exposure to loss if there is a reasonable possibility that there are additional amounts to be paid. The amount of the adjustment would be considered a 2009 event period adjustment. 3. Should M record the reduction of the previously recorded loss contingency in 2010 (upon the

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