Electronic Innovators is the defendant in a $10 million lawsuit filed by one of

Question

Electronic Innovators is the defendant in a $10 million lawsuit filed by one of its customers, Aviation Systems. The litigation is in final appeal, and legal counsel advises that it is probable that Electronic Innovators will lose the lawsuit. The estimated amount is somewhere between $6 and $10 million.

Which of the following statement(s) are true?

A loss and a liability must be recorded for $6 million.

   A loss and a liability must be recorded for $10 million.

   A disclosure note should be included for a range of $6 and $10 million to the financial statements
with an entry for the minimum amount.

   A disclosure note should be included for a range of $6 and $10 million to the financial statements
with an entry for the maximum amount.

Explanation / Answer

A loss and a liability must be recorded for $10 million. A disclosure note should be included for a range of $6 and $10 million to the financial statements with an entry for the maximum amount.

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