5. Forbes Company has been named as the defendant in a class action lawsuit. In

Question

5. Forbes Company has been named as the defendant in a class action lawsuit. In whether each of the following statements regarding the lawsuit is true or false. dicate a) If the outcome is likely, a liability sho b) if the outcome is likely, but cannot be reasonably estimated, the contingency should c) If th d) E uld be recognized on the balance sheet for the full amount of the suit, even if the company's attorneys estimate the outcome be much lo be disclosed in the footnotes to the financial statements. footnotes to the financial statements. wer. e outcome is reasonably possible, the contingency should be disclosed in the very lawsuit, regardless how frivolous, should be disclosed in the footnotes to the financial statements. e) If an active hurricane season has been predicted for the Florida gulf coast, businesses in that region should disclose contingencies for catastrophic loss in the footnotes to ther financial statements.

Explanation / Answer

True - a) If the outcome is likely, a liability should be recognized on the balance sheet for the full amount of the suit, even if the company's attorneys estimate the outcome to be much lower

True - b) If the outcome likely, but cannot be reasonably estimated, the contigency should be disclosed in the footnotes to the financial statements

True - c) If the outcome is reasonably possible, the contingency should be disclosed in the footnotes to the financial statements

False - d) Every lawsuit, regardless how frivolous, should be disclosed in the footnotes to the financial statements

False - e) If an active huricane season has been predicted for the florida gulf coast, businesses in that region should disclose contingencies for catastrophic loss in the footnotes to the financial statements

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