Angel Company is preparing its December 31, 2022 financial statements. On February 1, 2023, a customer had an accident in one of the company’s stores and subsequently filed a negligence lawsuit on February 6 of that year. The company’s lawyer has advised Angel that the company could likely settle the lawsuit for $50,000. The company’s financial statements were issued on March 10, 2023. Which of the following is correct regarding this lawsuit? Answer a. The liability should not be accrued but it should be disclosed in the notes to the 2022 financial statements regardless of whether it is material. b. This is not a recognized subsequent event. c. The loss of $50,000 will be reported in the 2022 financial statements if the lawsuit is settled before the financial statements are issued. d. The company should accrue a contingent liability and report it in the 2022 financial statements. Net income for 2022 will decrease by $50,000 (ignoring taxes).
Angel Company is preparing its December 31, 2022 financial statements. On February 1, 2023, a customer had an accident in one of the company’s stores and subsequently filed a negligence lawsuit on February 6 of that year. The company’s lawyer has advised Angel that the company could likely settle the lawsuit for $50,000. The company’s financial statements were issued on March 10, 2023. Which of the following is correct regarding this lawsuit?
Answer
The liability should not be accrued but it should be disclosed in the notes to the 2022 financial statements regardless of whether it is material.
This is not a recognized subsequent event.
The loss of $50,000 will be reported in the 2022 financial statements if the lawsuit is settled before the financial statements are issued.
The company should accrue a
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