Unified Airlines is being sued by Northeast Airlines for $5,000,000.At the end of the year,Unified feels it is probable that it will pay $5,000,000 at some point in the following year.What should Unified and Northeast record at the end of the year concerning the lawsuit?
A)Unified does not record any contingent loss;Northeast records $5,000,000 contingent gain.
B)Unified records $5,000,000 contingent loss;Northeast does not record any contingent gain.
C)Unified records $5,000,000 contingent loss;Northeast records $5,000,000 contingent gain.

Question

Quizplus · Accepted Answer

According to accounting principles, a company should record a contingent loss if it is probable and the amount can be reasonably estimated, which is the case for Unified Airlines. However, a contingent gain should not be recorded until it is realized, meaning Northeast Airlines should not record any contingent gain at this point.

Unified Airlines Is Being Sued by Northeast Airlines for $5,000,000