Peleton experienced a product recall on their treadmills. The company is currently in the middle of a lawsuit. It is probable that the company will lose the lawsuit due to injuries sustained from the treadmill use. The company cannot reasonably estimate the amount of their future obligation under the lawsuit. How should the company treat the lawsuit in their financial statements? Record as a liability on the balance sheet Stop selling more treadmills Disclose in the notes to the financial statements Ignore, not enough information is given

Peleton experienced a product recall on their treadmills. The company is currently in the middle of a lawsuit. It is probable that the company will lose the lawsuit due to injuries sustained from the treadmill use. The company cannot reasonably estimate the amount of their future obligation under the lawsuit. How should the company treat the lawsuit in their financial statements? Record as a liability on the balance sheet Stop selling more treadmills Disclose in the notes to the financial statements Ignore, not enough information is given

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

Peleton experienced a product recall on their treadmills. The company
is currently in the middle of a lawsuit. It is probable that the company
will lose the lawsuit due to injuries sustained from the treadmill use.
The company cannot reasonably estimate the amount of their future
obligation under the lawsuit. How should the company treat the
lawsuit in their financial statements?
Record as a liability on the balance sheet
Stop selling more treadmills
Disclose in the notes to the financial statements
Ignore, not enough information is given

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