KR Corporation was involved in a lawsuit with the Government alleging inadequate air pollution control facilities at its Glowworm plant site during 2013.At December 31,2016,it appeared probable the Government would settle for approximately $150,000.This event should be recorded (i.e.,recognized)in 2016 as a(n):
A) Loss on the lawsuit (operating expense).
B) Unusual gain.
C) Prior period adjustment.
D) Unusual loss.
E) Disclosure of contingency loss only in a note.

Question

Quizplus · Accepted Answer

The event should be recorded as a loss on the lawsuit (operating expense) in 2016 since it is probable that the settlement will occur, and the amount can be reasonably estimated. This would be recognized as a current liability on the balance sheet as of December 31, 2016.

KR Corporation Was Involved in a Lawsuit with the Government