Arcand Advisers is being sued by a former customer. Arcand's lawyers say that it is possible, but not probable, that the company will lose the lawsuit and that the trial should last approximately 18 more months. Should Arcand lose, it will most likely have to pay approximately $750,000. How should this lawsuit be reported on the financial statements? Oa. Current liability of $750,000 and expense of $750,000 Ob. Long-term liability of $750,000 and expense of $750,000 Oc. No effect on the statement of financial position or statement of earnings, but disclosed in the notes to the financial statements Od. No disclosure is required

Arcand Advisers is being sued by a former customer. Arcand's lawyers say that it is possible, but not probable, that the company will lose the lawsuit and that the trial should last approximately 18 more months. Should Arcand lose, it will most likely have to pay approximately $750,000. How should this lawsuit be reported on the financial statements? Oa. Current liability of $750,000 and expense of $750,000 Ob. Long-term liability of $750,000 and expense of $750,000 Oc. No effect on the statement of financial position or statement of earnings, but disclosed in the notes to the financial statements Od. No disclosure is required

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

Arcand Advisers is being sued by a former customer. Arcand's lawyers say that it is possible, but not probable, that the company will lose
the lawsuit and that the trial should last approximately 18 more months. Should Arcand lose, it will most likely have to pay approximately
$750,000. How should this lawsuit be reported on the financial statements?
Oa. Current liability of $750,000 and expense of $750,000
Ob. Long-term liability of $750,000 and expense of $750,000
Oc. No effect on the statement of financial position or statement of earnings, but disclosed in the notes to the financial statements
Od. No disclosure is required

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