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Fisher Company Has Been Named as the Defendant in a Class

Question 46

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Fisher Company has been named as the defendant in a class action lawsuit.In addition,the company is located in a region that normally has an active hurricane season.Indicate whether each of the following statements is true or false.

Premises:

Responses:

If the likelihood of a future obligation is probable and can be reasonably estimated,a liability should be recognized on the balance sheet.

True

Every lawsuit,regardless how frivolous,should be disclosed in the notes to the financial statements.

False

Since it is located in a region for which an active hurricane season has been predicted,the company must disclose the contingent liability,which is the potential for catastrophic loss,in the notes to their financial statements.

If the outcome is probable,but cannot be reasonably estimated,the contingency should be disclosed in the notes to the financial statements.

If the outcome is reasonably possible but not likely,the contingency should be disclosed in the notes to the financial statements.

Premises:

If the likelihood of a future obligation is probable and can be reasonably estimated,a liability should be recognized on the balance sheet.

Every lawsuit,regardless how frivolous,should be disclosed in the notes to the financial statements.

If the outcome is probable,but cannot be reasonably estimated,the contingency should be disclosed in the notes to the financial statements.

If the outcome is reasonably possible but not likely,the contingency should be disclosed in the notes to the financial statements.

Responses:

True

False

Correct Answer:

Premises:

Responses:

If the likelihood of a future obligation is probable and can be reasonably estimated,a liability should be recognized on the balance sheet.

Every lawsuit,regardless how frivolous,should be disclosed in the notes to the financial statements.

If the outcome is probable,but cannot be reasonably estimated,the contingency should be disclosed in the notes to the financial statements.

If the outcome is reasonably possible but not likely,the contingency should be disclosed in the notes to the financial statements.

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