Question

Huprey Co. is the defendant in the following legal claims. For each of following claims, does Huprey (a) Record liability, (b) Disclose in notes, or (c) No disclosure. 1. It is reasonably possible that Huprey will lose a pending lawsuit. The loss cannot be estimable. Disclose in notes. No disclosure. Record liability. 2. Huprey is being used for damages of $2 million. It is very unlikely (remote) that Huprey will lose the case. Disclose in notes. No disclosure. Record liability. 3. Huprey can resonably estimate that a pending lawsuit will result in damages of $1.25 million, it is probable that Huprey will lose the case. Disclose in notes.

Answer 1

Answer:

a) Disclose in the notes

b) no Disclosure

c) Record a liability

Explanation:

There are three scenarios to be considered

1) It is reasonably possible that Huprey will lose a pending lawsuit. The loss cannot be estimable

First, premise is that Huprey Co. is facing a lawsuit and the possibility of a loss is most possible. If Huprey Co is able to recognize the amount of loss, then he would have been able to record a liability but the inability to estimate the loss means, the company can only make appropriate disclosure in notes

2)Huprey is being used for damages of $2 million. It is very unlikely (remote) that Huprey will lose the case.

This second premise is also a lawsuit on damages for $2 million, however, it is most reasonably acceptable that Huprey will win the lawsuit. As such there is no loss, that way there will be no disclosure in Huprey Co's books.

3.  Huprey can reasonably estimate that a pending lawsuit will result in damages of $1.25 million, it is probable that Huprey will lose the case.

The probability of losing a case means that there will be a loss to be recorded in the books and since the damages are already estimable to be $1.25 million. Huprey Co should record a liability