Gore Inc.recorded a liability in 2016 for probable litigation losses of $2 million.Ultimately,$5 million in legitimate warranty claims were filed by Gore's customers.

Question

Quizplus · Accepted Answer

Gore recorded a liability for probable litigation losses in 2016, which is an estimate of a potential liability. However, the actual amount of legitimate warranty claims filed by customers exceeded this estimate. In this case, Gore needs to adjust its estimated liability for future litigation losses prospectively, since the liability was initially recognized as an estimate rather than an error or a change in accounting principle. Therefore, the best choice is C, which requires adjusting the accounting estimate prospectively.

Gore Increcorded a Liability in 2016 for Probable Litigation Losses of of $2