Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?
A) The amount can be reasonably estimated.
B) The outcome is probable.
C) The outcome is reasonably possible.
D) The outcome is probable and can be reasonably estimated.

Question

Quizplus · Accepted Answer

A pending lawsuit is recognized as a liability on a company's balance sheet if the outcome is probable and the amount can be reasonably estimated. This is because probable outcomes are likely to result in a financial loss for the company, and the estimated amount of the loss must be reported on the balance sheet in order to provide an accurate picture of the company's financial position. If the outcome is only reasonably possible, the potential financial impact is uncertain and cannot be reliably reported as a liability.

Under What Condition Is a Pending Lawsuit Recognized as a Liability