One of Villager Corp's employees invented a revolutionary coffee lid that cools coffee as you drink it in order to prevent burns.Two children ordered coffee and burned their mouths after failing to properly secure the lids.The children's parents sued.Villager Corp's.lawyers believe that it is highly probable that judgment will be rendered against Villager Corp and it is likely a payment in excess of $2 million will be incurred.The proper accounting treatment of the lawsuit will

Question

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The proper accounting treatment for a probable and estimable loss contingency, like the lawsuit described, is to record a liability and an expense in the financial statements, which increases total liabilities.

One of Villager Corp's Employees Invented a Revolutionary Coffee Lid