Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion.The litigation is anticipated to continue for several years,but no reasonable estimate can be made at this time regarding ultimate financial responsibility.This situation is an example of a(n)

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This situation represents a loss contingency, meaning that it is a potential loss that depends on future events beyond the control of the company. According to accounting rules, a loss contingency should be disclosed in the notes to financial statements if it is material and the likelihood of the loss occurring is more than remote. Recording a $3 billion expense at this time would not be appropriate since it is uncertain whether the company will ultimately be responsible for this amount. The estimated liability should only be recorded if it is probable and can be reasonably estimated.

Boston Trombley Company Is a Defendant in a Lawsuit Alleging