A restaurant has been sued because a customer claims to have found a bug in her chili. The company's lawyers believe there is only a remote possibility that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?

Question

Quizplus · Accepted Answer

Since the company's lawyers believe there is only a remote possibility of liability, it is not necessary to estimate and record the possible liability as an expense. It is also not necessary to describe the situation in a note to the financial statements. Therefore, the possible liability should not be shown in the financial statements at all. Option D, Management considering resigning is not a reasonable choice in this case.

A Restaurant Has Been Sued Because a Customer Claims to Have