X Company considers it possible that it will lose a lawsuit it is currently involved in and will have to pay damages of

$50

million.

x

Company is required to:\ Disclose in a footnote to the financial statements that it expects to pay

$50

million.\ Record a liability for

$25

million, and disclose in a footnote the existence of the lawsuit.\ Record a liability for

$50

million.\ No action is required because

x

may still win the lawsuit.\ 1\ 2\ 3\ 4

Transcribed Image Text:

X Company considers it possible that it will lose a lawsuit it is currently involved in and will have to pay damages of $50 million. X Company is required to: 1. Disclose in a footnote to the financial statements that it expects to pay $50 million. 2. Record a liability for $25 million, and disclose in a footnote the existence of the lawsuit. 3. Record a liability for $50 million. 4. No action is required because X may still win the lawsuit. 01 02 3 04 X Company considers it possible that it will lose a lawsuit it is currently involved in and will have to pay damages of $50 million. X Company is required to: 1. Disclose in a footnote to the financial statements that it expects to pay $50 million. 2. Record a liability for $25 million, and disclose in a footnote the existence of the lawsuit. 3. Record a liability for $50 million. 4. No action is required because X may still win the lawsuit. 01 02 3 04