Chapter 13 - Test Bank 196 - Order The company pending...

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132. In its 2013 annual report to shareholders, Hyer Aviation Group Inc. included the following disclosure: On October 6, 2012, the company's subsidiary, Pyro Aeroplex, filed suit against Syntex, an unincorporated division of Bright American Corporation, for breach of contract and fraud with regard to the supply of deficient wire rope that is installed as aircraft flight control cables on WD-50 aircraft. The case, filed in the circuit court of Bell County, Arkansas, was brought to trial and on September 20, 2013, a jury returned with a verdict in favor of the company in the amount of $17.5 million. The Court, upon a post-judgment motion filed by Pyro, reduced the judgment to $4.5 million. Pyro has appealed that Order to the Supreme Court of Arkansas. The company believes the appeal is without merit and will continue to pursue final judgment on the
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Unformatted text preview: Order. The company, pending appeal, has not recorded the $4.5 million favorable judgment. Required: What journal entries, if any, has Hyer recorded regarding this contingency? Explain its rationale. Hyer has not recorded a journal entry for the contingency. Although a jury returned a verdict in favor of Hyer's subsidiary, the case is still on appeal. Thus, this is a gain contingency for Hyer and should not be recorded until the case appeal has been ruled upon. AACSB: Analytic AICPA FN: Measurement Blooms: Analyze Difficulty: 2 Medium Learning Objective: 13-06 Demonstrate the appropriate accounting treatment for contingencies; including unasserted claims and assessments. Topic: Accounting for contingencies...
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