accounting for loss contingency

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Case l3-8

Accounting for a Loss Contingency for a Verdict Overturncd on Appcal M International ("M") and W hrc. ("W," a competitor of M) have been engaged in longstanding litigation over a specific patent infringernent matter. Below is a summary timeline of specific events that have taken place related to this matter:

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hr May 2001,W filed a claim against M for patent infringement.

For the year ended December 31,2007 , manageilent of M detelnined that a loss for this matter was probable and represented that the estimate ofloss was in the range of $15 million to $20 million, with $17 million being the most likely amount of loss within the range.

A jury trial took place in September 2009.

Thejury reached a veldict on September 24,2009, and ajudgment was ordeled in favor of W. The judgment required M to pay W $18.5 rnillion. In November 2009, M f,rled

a

Notice of Appeal with the Court of Appeals.

In December 2010, the Court of Appeals issued a ruling in favol of M's appeal and reversed the lower court's luling on the matter. This meant that the Court of Appeals overturned the jury verdict and the $18.5 million judgment against M. On January 6,2011, W hled a petition for a re-hearing before the same panel appellatejudges against the reversal ofruling by Court ofAppeals.

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On February 10,2011, the appellate judges declìned the petition for a re-hearing. On February 28,2011, management of M determined this matter was closed upon discussions with il-house legal counsel.

Required:
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For the year-end December
record as a liability?

31 , 2007

, frnancial statenìents, what arnount should

2.

Fotthe year-end December 31,2009, financial stâtements, should M adjust its liability? lfso, what amount should be lecorded; and should the amount ofthe adjustment be consideled a 2009 event ol a priol period adjustrnent?

3.

M

Should M record the reductiotl ofthe pleviously recorded loss...