Young Company is involved in a lawsuit. When would the lawsuit be recorded as a liability on the balance sheet?
A)When the loss probability is remote and the amount can be reasonably estimated.
B)When the loss is probable and the amount can be reasonably estimated.
C)When the loss probability is reasonably possible and the amount can be reasonably estimated.
D)When the loss is probable regardless of whether the loss can be reasonably estimateD.A contingent liability that is probable and can be reasonably estimated is reported as a liability on the balance sheet.

Question

Quizplus · Accepted Answer

A liability related to a lawsuit should be recorded on the balance sheet when it is probable that the company will bear a loss, and the amount of that loss can be reasonably estimated. This is in accordance with generally accepted accounting principles (GAAP).

Young Company Is Involved in a Lawsuit