Carpenter, Inc., a wholly owned subsidiary of the U.S.-based company, Buildings Ltd., was notified of a loss contingency with an estimated cost ranging between $100,000 and $220,000. Carpenter, Inc. hired an expert appraiser who assessed that all possible dollar amounts of liability in this range are equally likely. Management of Carpenter, Inc. has estimated that there is a 65 percent chance that this contingency will result in an actual loss.According to U.S. GAAP, what is the amount recognized by Carpenter, Inc. as a provision for loss contingency?

Question

Quizplus · Accepted Answer

Under U.S. GAAP, a loss contingency is recognized only if it is probable and can be reasonably estimated. Since the probability is 65%, which is not considered "probable" (typically 70% or more), no amount is recorded, but it should be disclosed in the notes.