Question

Wyatt Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be
A. The maximum of the range.
B. The mean of the range.
C. Zero.
D. The minimum of the range.

Answer 1

Answer:

D. The minimum of the range

Explanation:

First, it is essential to note the accrual of loss contingency is accruable only if the amount is estimable to a reasonable extent and the loss is also probable. Wyatt Co's loss is actually both probable and reasonably estimated so it meets the two criteria.

Furthermore, since it is reasonable within a rang of outcomes, Accounting Standards Codification Topic 450 (of the Financial Accounting Standard Board) dictates the amount to be accrued should be the better estimate of all amounts within the range.

The standard further states that in a situation where a better estimate can not be determined among the other amounts within the range then the amount accrued should be the one at the range's low end or the minimum amount of the range.

All these criteria shows that Wyatt CO's loss should accrue the minimum amount in the range