HW Chap 8

How would the following be disclosed on W&H Company’s financial statements? The balance sheet was dated December 31, 2010, and the financial statements were issued February 14, 2011.
1. The Internal Revenue Service (IRS) has claimed that W&H Company owes $450,000 of additional taxes for the first quarter of 2010; the claim was made in a suit filed on Jan 25, 2011. W&H Company’s tax adviser estimates that the actual amount that will be paid is between $270,000 and $318,000.
2. On January 15th, 2011, a fire destroyed one of W&H Company’s warehouses. The warehouse had a net book value of $2,735,000 on the year end balace sheet.
3. During 2010, a lawsuit was filed against W&H company that claimed $750,000 in punitive damages and $400,000 in personal injury, which the plaintiff alleges occured when using one of W&H Company’s products. The suit was not settled as of December 31, 2011, but the company’s attorney is convinced insurance would pay 75% of any award.
4. In late December, 2010 several dissident shareholders had informed the company that they intended to sue the W&H board of directors for $5,000,000 because the board had rejected a merger offer proposed by a major supplier. The company has indemnified the directors; thus, any judgment against the directors would be paid by the company. W&H Company’s attorney felt any such suit would be without merit.

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