Your boss has just asked you to write a short note to one of his clients that

Question:

Your boss has just asked you to write a short note to one of his clients that had expressed some concerns about the difference between liabilities that are of an unknown amount versus . The client is in the midst of a lawsuit with a governmental agency that its attorney thinks has about a 50-50 chance of winning. However, if the company loses, it could cost a substantial amount of money. The client is wondering if it needs to account for the lawsuit, and if so, how?

Requirement
1. Write a note to the client explaining the difference between a liability of an unknown amount and a contingent liability. Also, make a suggestion as to how this particular situation might need to be accounted for.

Contingent liabilities
A contingent liability is an obligation of business related to an uncertain future event. The business must record it in its financial statements if the amount can be reliably estimated and it is probable that amount will be paid by business as a...