ADMS 3595 Lecture Notes - Lecture 8: Patent Infringement, Plutonium, The Province
ADMS3595
Chapter 13 – Supplementary Question
Contingency – Handout Questions:
1. Fred Smuck injured himself when he slipped on an icy sidewalk in front of Grocery Store
Inc.’s (GSI) retail outlet. Smuck subsequently sued the company for $1,000,000 in damages.
GSI’s legal counsel advises that there is a 90% probability that it will be found liable and, if
GSI loses the case, the plaintiff will be awarded between $20,000 and $30,000, with all
estimates in the range equally likely.
2. Gillian Worrywart sued Really Big Power Corp. (RBP) for $100 million alleging that the
radiation from RBP’s power lines in the vicinity of her home caused her irreparable brain
damage. RBP’s legal counsel considers this to be a nuisance lawsuit with a very low
probability of success.
3. The Province of Ontario sued Nuclear Power Corp. (NPC) for $20 million for the cost of
cleaning up NPC’s accidental discharge of plutonium. NPC acknowledged liability but
disputed the amount believing the actual clean-up costs to be somewhere between $14
million and $16 million. NPC’s $50 million insurance policy for negligence is subject to a $2
million deductible.
4. Mark Corp. sued Julie Inc. for $800,000 for patent infringement. Julie Inc.’s legal counsel
believes that the plaintiff has a 60% probability of success. Assuming that the plaintiff is
successful, counsel believes that there is a 20% probability of a $400,000 award; a 50%
probability of a $600,000 award; and a 30% probability of a $700,000 award.
Required:
Assume that all amounts can be reliably measured. Describe the appropriate accounting
treatment for each of the situations described above for the defendant in the case (the company
that is being sued). Prepare any journal entries that may be required.
Document Summary
Contingency handout questions: fred smuck injured himself when he slipped on an icy sidewalk in front of grocery store. Smuck subsequently sued the company for ,000,000 in damages. Gsi"s legal counsel advises that there is a 90% probability that it will be found liable and, if. Npc acknowledged liability but disputed the amount believing the actual clean-up costs to be somewhere between million and million. Npc"s million insurance policy for negligence is subject to a million deductible: mark corp. sued julie inc. for ,000 for patent infringement. Julie inc. "s legal counsel believes that the plaintiff has a 60% probability of success. Assuming that the plaintiff is successful, counsel believes that there is a 20% probability of a ,000 award; a 50% probability of a ,000 award; and a 30% probability of a ,000 award. Assume that all amounts can be reliably measured.
