A) I think this amount should be included on the balance sheet of the business since there still is a chance that they amount will be paid. If there will be no chance of that amount to be paid then it shouldn't be on the balance sheet but otherwise yes it should. Once the lawyer notifies the company saying whether or not the 500$ will be paid then the company should either keep in on their balance sheet or get rid of it. .
B) I believe the GAAP is the cost of principle since this asset should be recorded at the actual value of 500$ but it's yet to be known if this money will be paid off or not. Also I think this has something to do with the business entity concept since a customer's death is part of personal affairs but even this shouldn't get in the way of the money owed to the company. .
2. .
A) I think the new amount of $400,000 is the one that the contracting company should put under Accounts Receivable. Since the court appointed that the customer will only pay $400,000 not $500,000 the customer will obviously go for the amount that is less and will not pay a penny more than $400,000. The contracting company should know that the customer will not pay over $400,000 since that's what the court decided so obviously they should not put $500,000 instead of $400,000 on their Balance Sheet.
B) The GAAP this situation should fall is the cost of principle and principle of conservatism. It's the cost of principle because their value should be recorded as the actual cost to the business which is $400,000 in this case, not $500,000. Also, I thought it should be principle of conservatism since the contractors need to be fair about their A/R account because $100,000 could make a difference in the company and if they are caught lying about that amount it will not make them look good.
3. .
A) The buyer and accountant should definitely not accept your balance sheet from six months ago because a lot would have changed within then.