One of Tonic Corp's employees invented a revolutionary coffee lid that cools coffee as you drink it in order to prevent burns. Two children ordered coffee and burned their mouths after failing to properly secure the lids. The children's parents sued. Tonic Corp's. lawyers believe that it is highly probable that judgment will be rendered against Tonic Corp and it is likely a payment in excess of $2 million will be incurred. The proper accounting treatment of the lawsuit will
A)decrease total liabilities.
B)increase total liabilities.
C)increase the current ratio.
D)require accountants to wait until the suit is settled to account for the event.

Question

Quizplus · Accepted Answer

The lawsuit will result in a likely payment in excess of $2 million, which means Tonic Corp will incur a liability. Therefore, the proper accounting treatment of the lawsuit will increase total liabilities.

One of Tonic Corp's Employees Invented a Revolutionary Coffee Lid