A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit. The company's lawyers believe it is more than remote, but less than probable, that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?
A)Management should consider resigning.
B)The possible liability should be ignored.
C)The liability should be estimated and recorded as an expense.
D)The situation should be described in a note to the financial statements.

Question

Quizplus · Accepted Answer

When a liability is more than remote but less than probable, it should be disclosed in the financial statement notes, rather than recorded as an expense.

A Company Has Been Sued for Product Failures Allegedly Resulting