Pending lawsuits:
A) Are always considered estimated liabilities.
B) Should always be recorded.
C) Should always be disclosed.
D) Should be disclosed if payment for damages is probable but the amount cannot be reliably estimated.
E) None of these answers is correct.

Question

Quizplus · Accepted Answer

Pending lawsuits should be disclosed in the footnotes if payment for damages is probable but the amount cannot be reliably estimated. If the outcome is uncertain, and there is no reasonable estimate of the potential loss, then no accrual should be recorded, but disclosure should still be made in the notes to the financial statements. It is not always necessary to record a liability for pending lawsuits, especially if the outcome is uncertain.

Pending Lawsuits