You have just been hired by Dunder Mifflin Paper Company in their financial accounting research group. For your first project, you have been asked to evaluate the financial impact of a lawsuit. Dunder Mifflin has been named as the defendant in a lawsuit claim regarding a fall. A customer tripped over an extension cord in their store and broke her leg while the employees were playing a game of electric cord limbo. The plaintiff is suing for $150,000 in damages. The lawyers believe the ultimate amount of loss could range from $50,000 - $105,000, with no amount in the range more likely than other amounts in the range. The lawsuit is expected to be resolved by the end of the second quarter next year.

Prepare a brief accounting memo which cites from authoritative literature. The memo should address the following: (1) whether a loss should be accrued, and for what amount, and (2) what disclosures should be made in the companys financial statements.