Available after the balance sheet date be considered in determining managements best estimate of the medical benefits payable?

Available after the balance sheet date be considered in determining managements best estimate of the medical benefits payable?

Case 12-2To Recognize or Not to Recognize, That Is the QuestionShakespeare Inc. (Shakespeare or the Company) is a privately held book printing and drafting company with a December 31 year-end. The summary balance sheet as of December 31, 2011, included:Current assets$ 6,500,000Noncurrent assets28,250,000Total assets$34,750,000Current liabilities$ 4,500,000Noncurrent liabilities13,750,000Total liabilities$18,250,000Total shareholder equity$16,500,000The summary results of operations for the year ended December 31, 2011, included revenue of $10.7 million and net income of $1.2 million.Shakespeare is planning to issue its financial statements on March 20, 2012. On March 18, 2012, Shakespeares management will evaluate new information about one of its accruals and two subsequent events to determine if this information or events represent items that should be recognized or disclosed in the December 31, 2011, financial statements.Medical Benefits PayableFor the past several years, Shakespeare has self-insured medical benefits (health and dental) for its employees. The Company records the costs of medical care in the period in which covered events occur and includes its best estimate of the costs that have been incurred but not yet reported (IBNR) in its estimate of the medical benefits payable. Shakespeare looks to the FASB Accounting Standards Codification, which defines IBNR in the Master Glossary as [l]osses incurred by the insured entity that have not yet been reported to the insurance entity. Shakespeares management estimates its liability with the assistance of third-party experts using actuarial techniques, assumptions, and observations that are based on past experience of claims paid through the balance sheet date. The Company monitors the continued reasonableness of the assumptions and methods used to estimate the IBNR liability each reporting period. Managements process for estimating its medical benefits payable is disclosed in its Significant Accounting Policies footnote. Management has a history of accurately estimating the IBNR liability using these techniques as validated by the actual claims received. Historically, all claims are received by Shakespeare within two months of the medical services being provided to its employees.Using this process, management estimated an IBNR liability of $1.25 million as ofDecember 31, 2011. As of managements review on March 18, 2012, Shakespeare hadAll Rights Reserved.Case 12-2c: To Recognize or Not to Recognize, That Is the Question Page 2received claims totaling $0.75 million for medical care costs incurred before December 31, 2011.Line of Credit ModificationAs of December 31, 2011, Shakespeare had a line of credit with a bank of $8 million (with a $10 million maximum amount available) due in approximately three years from the balance sheet date. Interest accrues on amounts drawn under the line at the London Interbank Offered Rate (LIBOR) (subject to a 3.5 percent floor) plus 7.5 percent per year. Shakespeare is also required to pay a commitment fee equal to 2 percent per year on the portion of the line of credit that was not drawn upon.On March 1, 2012, the Company completed its modification of the terms of the li

Having Trouble Meeting Your Deadline?

Get your assignment on Available after the balance sheet date be considered in determining managements best estimate of the medical benefits payable? completed on time. avoid delay and – ORDER NOW

Do My Paper

Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Order Now and we will direct you to our Order Page at Litessays. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.