REV Co, is reviewing the accounting and disclosure

REV Co, is reviewing the accounting and disclosure requirements for its significant guarantees, commitments, and contingencies, including litigation, as of December 31, year 3. The financial statements are expected to be available to be issued on February 10, year 4.

Determine the amount, if any, to recognize and whether disclosure is required in REV’s financial statements as of and for the year ended December 31, year 3. Unless otherwise specified, assume that no amounts related to these guarantees, commitments, and contingency including litigation, have been recognized in the financial statements, as of December 31, year 3.

Letter from outside legal counsel to REV Co. general counsel

A&B, LLP

100 New Street

Boston MA, 02125

January 31, year 4

General counsel, REV Co..

The following is an update on the four matters for which we were retained to represent REV Co.:

• REV is a defendant in a $6,000,000 copyright infringement lawsuit brought by Beech Co. in October, year 3. REV has offered $1,500,000 to settle the lawsuit, but Beech made a counteroffer of $5,000,000. The case is not expected to go to trial, and we believe that a loss is probable. As of the date of this letter, negotiations are ongoing. Although we cannot determine the exact amount of loss, we believe that a reasonable estimate of the loss is between $2,000,000 and $5,000,000. No amount within the range is a more likely outcome than any other amount.
• On September 15, year 3, a $6,500,000 product liability lawsuit was brought against REV by a customer who sustained injuries while using one of REV’s products. As of the date of this letter, we have completed our initial discovery and believe that the lawsuit is without merit. Given that the lawsuit lacks merit, we believe that the possibility that REV will be required to pay any amount to settle the lawsuit is remote.
• On October 15, year 3, one of REV’s facilities sustained significant water damage. At your request, we contacted the property insurance carrier to check on the status of the $2,500,000 claim that REV filed on November 1 5, year 3. On December 27, year 3, the property insurance carrier acknowledged that the losses appear to be covered by the insurance policy. However, the property insurance carrier stated that its adjuster is still reviewing the claim and does not expect to settle it until March, year 4. The property insurance carrier further indicated that any payment is subject to the $125,000 deductible included in the property insurance policy.
• On November 28, year 3, the State Health and Safety Agency completed an inspection of REV’s production facility, noting several safety violations. Based on our review of the agency’s findings, we believe that REV will be subject to a penalty of up to $l75,000.

Sincerely,

A. Smith, Lead counsel, A&B, LLP

Letter from State Health and Safety Agency

State Health and Safety Agency

1000 Main Street

Boston, MA 02125

February 5, year 4

REV co.

45 Cherry Road

Boston, MA 02125

REV co.:

This letter serves as notice that you are being assessed a fine of $150,000 related to violations of state health and safety codes that were identified on November 28, year 3, at your manufacturing facility located at 85 Elm street, Boston, MA 02125.

Our follow-up inspection on December 15, year 3, indicated that the violations were appropriately remediated, and there were no outstanding code violations at that time.

Sincerely,

State Health and Safety Agency

Requirements:

a) What is the rule regarding initial measurement of loss contingency specified in Accounting Standard Codification 450-20-30-1?

If you want to access the FASB Codification system, please use the following link:

http://aaahq.org/Research/FASB-GARS

Username and password are as follows:

Username – AAA51789

Password – B3W6xYt

b) For each of REV’s contingency including litigation, in the table below:

• Indicate whether disclosure is required using “Yes” or “No”.

• Enter the asset or liability balance, any, that should be recognized as of December 31,

year 3. Enter asset balances as positive whole dollars and liability balances as negative whole dollars. If no recognition is required, enter a zero (0).