Question: Loss Contingency
On December 4,2016, Dan Johnson delivery truck driver for Farmers products Inc, ran a stop sign and collided with another vehicle. On January 8,2017, the driver of the other vehicle filed suit aganist Farmers Products for damages to the vehicle. Estimated damages to the vehicle were between $6,000 and $10,000 with no amount with in the range more likely than any other amount. Farmers Products issued its 2016 financial statements on March 3, 2017.
Required: 1) Prepare the disclosures and or journal entries Farmers Products should make in preparing its December 31,2016, financial statements.
2) If Farmers Products used IFRS, how would the disclosures and /or journal entries differ from those under U.S. GAAP? Which of the following criteria is used to determine how Farmers Products discloses the law suit?