Is Fast Eddie required to accrue a liability as of March 31, 2011, financial statements related to the ongoing government investigation? If so, how much?
Yes. Fast Eddie is required to accrue a liability of $3.7 million.
Subsequent Events are
Events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. There are two types of subsequent events:
a. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements (that is, recognized ...view middle of the document...
The government did not accept offers to settle before finalizing its investigation, as a result, Fast Eddie should accrue a liability as of Mar 31, 2011. According to ASC 450-20-25-2, the required accrual liability would be $3.7 million.
An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
a. Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.
b. The amount of loss can be reasonably estimated.
450-20-50-10 talks about Litigation, Claims, and Assessments.