A truck owned and operated by Abbott Company was involved in an accident with an auto driven by L. Costello on January 12, 2011. Abbott received notice on April 24, 2011, of a lawsuit for $800,000 damages for a personal injury suffered by L. Costello. Abbott's counsel believes it is reasonably possible that L. Costello will be successful against the company for an estimated amount in the range between $100,000 and $400,000. No amount within this range is a better estimate of potential damages than any other amount. It is expected that the lawsuit will be adjudicated in the latter part of 2012. What amount of loss should Abbott accrue at December 31, 2011?

Question

Quizplus · Accepted Answer

Since it is only "reasonably possible" and not "probable" that Abbott will lose the lawsuit, no loss should be accrued. Instead, the potential loss should be disclosed in the financial statement notes.

A Truck Owned and Operated by Abbott Company Was Involved