Brief Respite,Inc.,sold underwear made from a fabric that gave many of its customers a serious rash.The customers are suing the company in a class action suit and Brief Respite's attorneys think it is probable that the case will cost the company $2 million,although the verdict is not yet in.The company should:

Question

Quizplus · Accepted Answer

The company should record a liability and a loss for $2 million as it is probable that the case will cost the company that amount. This information should be included in the financial statements as it is important for shareholders and potential investors to be aware of potential costs and liabilities. The information can also be explained more in detail in the notes to the financial statements.