During the year,a $1,000,000 lawsuit was filed against a US company for unsafe working conditions.Management and the attorneys feel that it is not likely that the company will lose the case.The plaintiff who filed the lawsuit has offered to settle for $600,000.Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000.What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?
A)$100,000
B)$600,000
C)$300,000
D)$0

Question

Quizplus · Accepted Answer

If the loss is probable and can be reasonably estimated,the liability and estimated loss is recorded in a journal entry.If the likelihood of loss is only reasonably possible,no journal entry is recorded;the contingent liability is disclosed in the notes to the financial statements.If the likelihood of loss is remote,which is the case here,no journal entry is recorded;the contingent liability is not disclosed in the notes to the financial statements.

During the Year,a $1,000,000 Lawsuit Was Filed Against a US