A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit.The company's lawyers believe it is more than remote,but less than probable,that the lawsuit will result in an actual liability.Which of the following actions should be taken by the company's management?
A) The liability should be estimated and recorded as an expense.
B) The situation should be described in a note to the financial statements.
C) The possible liability should be ignored.
D) Management should consider resigning.

Question

Quizplus · Accepted Answer

It is important to disclose any potential lawsuits or liabilities in the notes to the financial statements so that shareholders and potential investors are aware of the situation. Ignoring the potential liability or estimating and recording it as an expense could be premature and may not reflect the actual outcome of the lawsuit. Resigning is not a necessary or appropriate action at this point.

A Company Has Been Sued for Product Failures Allegedly Resulting