Remington Entity (RE) developed a patent in waffle making. The patent is completely unique. Flap Jack & Jill Entity (FJJE) violated the patent and RE sued FJJE. RE's lawyers are optimistic that they will win and that the winnings will be $80,000 in three years. RE has a discount rate of 10 percent. How much of a contingent asset is RE allowed to recognize at this time?
A) $80,000
B) $60,015
C) $0
D) none of the above

Question

Quizplus · Accepted Answer

According to accounting standards, contingent assets are not recognized on the financial statements until it is virtually certain that the inflow of benefits will occur. Since the outcome of a lawsuit is uncertain, RE cannot recognize any amount as a contingent asset at this time.

Remington Entity (RE) Developed a Patent in Waffle Making