Ultimate Company is a defendant in a lawsuit alleging damages of $3 billion.The litigation is expected to continue for several years,and no reasonable estimate can be made at this time of Ultimate Company's ultimate financial responsibility.This situation is an example of:

Question

Quizplus · Accepted Answer

The situation described in the question is a loss contingency, which is an uncertain situation that may result in a loss to a company. According to accounting principles, loss contingencies should be disclosed in the notes to the financial statements, as their financial impact cannot yet be determined with certainty. Option A is incorrect because off-balance-sheet financing refers to financing activities that are not recorded on the balance sheet. Option C is incorrect because an estimated liability cannot be recorded in the balance sheet if its financial impact cannot be determined with certainty. Option D is incorrect as it is unrelated to the situation described in the question.

Ultimate Company Is a Defendant in a Lawsuit Alleging Damages