Before year end, a companys truck driver is involved in a three-vehicle wreck. One of the injured
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Question:
A company has been involved in ongoing litigation with one of its competitors for many years.
Before the end of the year being audited, the outside legal counsel sends a letter to the company's owners stating that it is probable that the company will have to make a payment to the plaintiff to settle the litigation. However, the law firm could only say that it is probable the company will have to pay somewhere between $75,000 and $200,000 in the settlement. Required: For both cases discussed above, Answer two questions:
1. Should the company record a loss reserve at year end, and if so, for how much?
2. Should the company disclose this matter in the footnotes to the company's financial statements at year end?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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