Chapter 9, Problem 9.9E

Reporting Contingent Liabilities

Jones Soda is a regional soda manufacturer in the Pacific Northwest. Jones is currently facing three lawsuits, summarized below:

1. a. A customer is suing Jones for $1 million because he claims to have found a piece of glass in his soda. Management deems the probability that Jones will lose the lawsuit and have to pay $1 million as reasonably possible.
2. b. An employee is suing Jones for $500,000 for an injury she incurred in the parking lot while walking to work. Management deems the probability that Jones will lose the lawsuit as probable, but estimates that a reasonable payout will be $100,000, not $500,000.
3. c. A customer is suing Jones for $300,000 because her last name is Jones and she claims Jones stole her name. Management deems the probability that Jones will lose the lawsuit and have to pay $300,000 as remote.

Required:

How should Jones report each of the lawsuits in its financial statements and footnotes?