A company has a possible favorable outcome in pending litigation against a competitor for patent infringement in the amount of $7,000,000. Lawyers assess the probability of success at 70% and the likely award to be $5,000,000. The company estimates that it could probably collect $4,000,000 of the award from the defendant. How should the company report the litigation?

• Gain contingency of $4,000,000
• Gain contingency of $5,000,000
• Gain contingency of $7,000,000
• The gain contingency would not be reported

A toy manufacturer has received numerous claims from customers that its toy are defective. The company’s leadership team is recommending a recall of the toys for board approval. The recall is projected to cost $240,000. Would the manufacturer record the recall as a contingent loss?

• Yes because a loss should be recorded if it is either possible or can reasonably be determined
• Yes because it is both probable and can be reasonably estimated
• No because the cost cannot be precisely demanded until the recall take place
• No because it is possible but not probable

Answer rating: 100% (QA)

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