If a company can determine a reasonable estimate of an expected loss from a lawsuit and it is probable it will lose the suit, it should
A)disclose the basic facts regarding the suit in the notes to its financial statements.
B)accrue the loss.
C)neither disclose in the notes nor accrue the loss.
D)pay the amount estimated.

Question

Quizplus · Accepted Answer

If a company can determine a reasonable estimate of an expected loss from a lawsuit and it is probable it will lose the suit, it should accrue the loss. This means that the company should record the estimated loss as an expense on its income statement and report it on the balance sheet as a liability. Disclosing the basic facts regarding the suit in the notes to its financial statements is also required, but accruing the loss is the appropriate accounting treatment. Neither disclosing in the notes nor paying the amount estimated is not acceptable.

If a Company Can Determine a Reasonable Estimate of an Expected