Freeman Motors, a motorcycle manufacturer, had the following contingencies. Determine the appropriate accounting treatment for each of the situations Freeman is facing Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman's attorneys estimate the potential loss will be $4,500,000. Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be $75,000. Describe the situation in a note to the financial statements. Do not disclose Record an expense and a liability based on estimated amounts
Freeman Motors, a motorcycle manufacturer, had the following contingencies. Determine the appropriate accounting treatment for each of the situations Freeman is facing Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman's attorneys estimate the potential loss will be $4,500,000. Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be $75,000. Describe the situation in a note to the financial statements. Do not disclose Record an expense and a liability based on estimated amounts
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Freeman Motors, a motorcycle manufacturer, had the following contingencies. Determine the appropriate accounting treatment for each of the situations Freeman is facing.
a.
b.
Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman's attorneys estimate the potential loss will be $4,500,000.
Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous.
C.
Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be $75,000.
Describe the situation in a note to the financial statements.
Do not disclose.
Record an expense and a liability based on estimated amounts.
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