Question Details

A suit for breach of contract seeking damages 



1
Snow Co. began operations on January 2, 2014. It employs 15 people who work 8-hour days.  Each employee earns 10 paid vacation days annually. Vacation days may be taken after January 10 of the year following the year in which they are earned. The average hourly wage rate was $20.00 in 2014 and $21.25 in 2015. The average vacation days used by each employee in 2015 was 9. Snow Co. accrues the cost of compensated absences at rates of pay in effect when earned.
Instructions
Prepare journal entries to record the transactions related to paid vacation days during 2014 and 2015.


2
Below are three independent situations.
1.	In August, 2014 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Barkley Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.

2.	A suit for breach of contract seeking damages of $2,400,000 was filed by an author against Henderson Co. on October 4, 2014. Henderson's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $800,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount.

3.	Kroft is involved in a pending court case. Kroft- lawyers believe it is probable that Kroft will be awarded damages of $1,000,000.

Instructions
Discuss the proper accounting treatment, including any required disclosures, for each situation.  Give the rationale for your answers.





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