Outpost Healthcare, Inc., provides long-term health care services primarily through the operation of nursing centers and hospitals. It operates 380 nursing centers, with 45,627 licensed beds in 35 states, and a rehabilitation therapy business. The following news release appeared in March 2018.

OUTPOST HEALTHCARE ANNOUNCES FISCAL 2017 RESULTS

Company Provides Operating Guidance for Fiscal 2018

Hall, Ind. (March 5, 2018) Outpost Healthcare, Inc., (the "Company") (NASDAQ: OUTP) today announced its operating results for the fourth quarter and fiscal year ended December 31, 2017.

Revenues for the fourth quarter of 2017 grew 7% to $689 million compared to $644 million in the fourth quarter last year, and net income from operations for the current quarter totaled $15.1 million or $0.74 per diluted share. Operating results for the fourth quarter of 2017 included an unusual pretax gain of $3.1 million ($2.3 million net of tax or $0.06 per diluted share) recorded in connection with the resolution of a loss contingency related to a partnership interest.

To Do:

Please consider how Outpost might have recorded a gain in connection with the resolution of a loss contingency. What might have led to the loss contingency being recorded? How did they record it? How would the gain be recorded?

Points to Note:

Apparently a previously recorded loss was higher than the ultimate outcome. Such situations are treated as changes in estimates. That is, no adjustment is made to the original reporting. Instead, when the estimate turns out to be wrong, a gain is recorded for the overstatement of the loss. Outpost apparently had felt the loss contingency was both probable and reasonably estimable. The loss contingency would have been accrued with a debit to a loss and a credit to a liability. The subsequent gain would be offset with a debit to the liability.