A large retailer was sued nearly 5,000 times in a recent year—about once every two hours every day of the year. It has been sued for everything imaginable—ranging from falls on icy parking lots to injuries sustained in shoppers’ stampedes to a murder with a rifle purchased at one of its stores. The company reported the following in the notes to its financial statements:

The Company and its subsidiaries are involved from time to time in claims, proceedings, and litigation arising from the operation of its business. The Company does not believe that any such claim, proceeding, or litigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position or results of its operations.

Instructions

(a) Explain why the company does not have to record these contingent liabilities.

(b) Comment on any implications for analysis of the financial statements.

AppendixLO2