A suit for breach of contract seeking damages of $3,000,000 was filed against Clark Corporation on March 1, 2009. Clark's legal counsel believes that a negative outcome is highly probable. A reasonable estimate of the court's award to the plaintiff is $600,000. Settlement is expected to occur during the latter part of 2009. What accounting is necessary for the year ending June 30, 2009?
A) Note disclosure only
B) Accrue a contingent liability of $3,000,000 and provide note disclosure explaining the contingency
C) Accrue a contingent liability of $600,000 and provide note disclosure explaining the contingency
D) No disclosure or accrual necessary

Question

Quizplus · Accepted Answer

Since a negative outcome is highly probable and a reasonable estimate of the liability is available, Clark Corporation should accrue a contingent liability of $600,000 and provide note disclosure explaining the contingency.

A Suit for Breach of Contract Seeking Damages of $3,000,000