One of PC Inc.'s customers called to complain about one of PC Inc.'s products. The customer is angry about some alleged manufacturing defects and has threatened to sue PC Inc. for $100,000. So far, no lawsuit has been filed.

Required

1. Assuming PC Inc. follows ASPE, indicate (yes or no) whether the company should recognize a contingent liability in its financial statements.

2. Indicate why a contingent liability should or should not be recognized.