Black, CPA, was engaged by Franklin &Associates to give an opinion on financialstatements being submitted to potentialpartners in an effort to expand the firm. Blackcompleted about half of the necessary fieldwork, but because of demands from otherclients, was forced to abandon the project. Asa result, prospective partners lost interestbecause the audit report was not available;Franklin & Associates suffered $750,000 indamages as a result. Black offered tocomplete the project in the future, butFranklin & Associates declined the offer. Giventhe circumstances, what is the probableoutcome of a lawsuit between Black andFranklin & Associates?(a) Franklin & Associates will recover bothpunitive damages and damages for breach ofcontract.(b) Neither Black not Franklin & Associates willrecover against the other.(c) Franklin & Associates will recover damagesfor breach of contract.(d) Black will receive compensation for thework already completed.I picked (d) but was incorrect.

A CPA is a person who is educated and experience in accounting and has qualified AICPA conducted…

Answered: Franklin & Associates declined the…

Franklin & Associates declined the offer. Given the circumstances, what is the probable outcome of a lawsuit between Black and Franklin & Associates?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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

Black, CPA, was engaged by Franklin &
Associates to give an opinion on financial
statements being submitted to potential
partners in an effort to expand the firm. Black
completed about half of the necessary field
work, but because of demands from other
clients, was forced to abandon the project. As
a result, prospective partners lost interest
because the audit report was not available;
Franklin & Associates suffered $750,000 in
damages as a result. Black offered to
complete the project in the future, but
Franklin & Associates declined the offer. Given
the circumstances, what is the probable
outcome of a lawsuit between Black and
Franklin & Associates?
(a) Franklin & Associates will recover both
punitive damages and damages for breach of
contract.
(b) Neither Black not Franklin & Associates will
recover against the other.
(c) Franklin & Associates will recover damages
for breach of contract.
(d) Black will receive compensation for the
work already completed.
I picked (d) but was incorrect.

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