Cyan Corporation is a manufacturer of paints and specialty coatings. In March 2020, Beck Inc....
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Cyan Corporation is a manufacturer of paints and specialty coatings. In March 2020, Beck Inc. filed a lawsuit against Cyan Corporation for alleged patent infringement, claiming $1.1 million in damages. Cyans lawyer disputed the claim, but in December 2020, Cyans lawyer informed management that Cyan will likely lose the dispute and have to pay between $900,000 and $1.1 million. Dissatisfied with this estimate and its potential impact on 2020 net income, Cyans management sought a second legal opinion in December 2020. The lawyer who provided the second opinion suggested that Cyan will likely have to pay between $400,000 and $600,000. In its financial statements for the year ended December 31, 2020, Cyan recorded a provision for a loss on the lawsuit and a liability in the amount of $500,000. Answer the following questions based only on the information provided. (a) Does Cyan have high-quality earnings? (b) Will the earnings reported by Cyan be discounted in the capital markets?
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