Which one of the following contingencies requires financial statement disclosure?
A)A lawsuit that the firm's attorneys believe will be dropped.
B)A lawsuit that the firm's attorneys believe will probably be settled for $75,000.
C)A reasonably possible loss on a lawsuit that the firm's attorneys cannot estimate the loss.
D)A reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $100,000.

Question

Quizplus · Accepted Answer

According to accounting guidelines, a reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $100,000 requires financial statement disclosure. Choices A and B do not require disclosure as the lawsuit is expected to be dropped or settled for a known amount, respectively. Choice C indicates a reasonably possible loss but does not provide an estimate of the possible loss, so disclosure is not required.

Which One of the Following Contingencies Requires Financial Statement Disclosure