Answer:
Explanation:
From the given information; the objectives are to:
A. Prepare journal entries for this lawsuit for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
B. Prepare the entry(ies) that Harrington would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.
A. Journal entries for the lawsuit for the years ending December 31, 2017 and December 31, 2018
1 Under US GAAP Debit Credit
31 Dec, Loss on lawsuit-estimated $34,000
2017 Estimated liability for lawsuit $34,000
(estimated liability provided for lawsuit)
31 Dec, Estimated liability for lawsuit $34,000
2018 Additional loss on lawsuit $33,000
Cash $67,000
(cash paid on settlement)
2 Under IFRS
31 Dec, Loss on lawsuit-estimated $56000
2017 Estimated liability for lawsuit $56000
(estimated liability provided for lawsuit)
31 Dec, Estimated liability for lawsuit $56000
2018 Additional loss on lawsuit $11000
Cash $67000
(cash paid on settlement)
Under US GAAP, if there is a range of possible losses but loss cannot be estimated within that range, the entity will record the low end of the range.
Under IFRS, if loss cannot be estimated with in the range, the entity will record the midpoint of range.
N.B:
Additional loss on lawsuit = 67000 - 34000
Additional loss on lawsuit = 33000
Estimated liability for lawsuit = (32000 + 78000)/2
Estimated liability for lawsuit = 56000
B. Journal entry for conversion from US GAAP to IFRS
31 Dec, Loss on lawsuit-estimated $22000
2017 Estimated liability for lawsuit $22000
31 Dec, Estimated liability for lawsuit $22000
2018 Additional liability for lawsuit $22000
