Question

Cody Company has a loss contingency. The company's legal council's opinion is that the contingency is probable and that they estimate that the amount of the loss will be $300,000.The proper accounting treatment for this contingency is to: A. only disclose the amount of $300,000 in the notes to the financial statements. B. the amount is neither accrued nor disclosed C. $300,000 amount should be accrued as a liability. D. not enough information is given to determine the accounting treatment.

Answer 1

C) if the contingency is probable and can be reasonably estimate then it MUST be recorded. If one or the other is should be disclosed in the notes.