In May 2014,the Sailfish Company became involved in litigation.As a result of this litigation,it is probable that Sailfish will have to pay $800,000.In July 2014,a competitor commenced a suit against Sailfish alleging violation of antitrust laws seeking damages of $1,100,000.Sailfish denies the allegations,and the likelihood of Sailfish paying any damages is remote.In September 2014,Urchins County brought action against Sailfish for $900,000 for polluting Lake Kissimmee.It is reasonably possible that Urchins County will be successful,but the amount of damages Sailfish will have to pay is not reasonably determinable.What amount,if any,should be accrued by a charge to income in 2014?

Question

Quizplus · Accepted Answer

According to accounting principles, a liability should be accrued if it is probable that a loss has occurred and the amount can be reasonably estimated. In this scenario, only the $800,000 from the litigation in May meets these criteria. The antitrust lawsuit's outcome is considered remote, and while the lawsuit from Urchins County is reasonably possible, the amount is not determinable, thus they should not be accrued.

In May 2014,the Sailfish Company Became Involved in Litigation