O'Brien Rental Problem

Indicate how O'Brien Rental should treat these contingencies by placing the letter of the correct

accounting treatment in the space provided.

a$.$ Accrue a liability and disclose in the financial statement notes

b$.$ Disclose in the financial statement footnotes only

c$.$ No disclosure

O'Brien Rental filed a lawsuit against Jane Rental for trademark

infringement. O'Brien's legal counsel believes it is probable that

O'Brien will win the suit and estimates the settlement to be

$$6,000,000.$

One of O'Brien's rental tents collapsed at a wedding and injured

the bride and groom. O'Brien's legal counsel believes it is

probable that O'Brien will have to pay damages of $$1,000,000.$

O'Brien Rental is being audited by the Internal Revenue Service.

Its tax returns for the past two years are being examined. At the

company's year$-$end, the audit is still in process. O'Brien's CPA

believes that payment of significant taxes is possible.

Because of a recently proven health hazard in one of its products

with warranty coverage, the government has indicated it will recall

the product. The management of O'Brien estimates that the recall

would cost $$1,100,000.$