Harriott, CPA is conducting an audit of Calashni Co. and receives a letter from Calashni Co.s attorney
Question:
Harriott, CPA is conducting an audit of Calashni Co. and receives a letter from Calashni Co.’s attorney stating the following regarding the company’s only pending lawsuit:
Outcome Probability Gain or Loss
Win Most likely Gain of $500,000
Lose Possible Loss of $500,000
Lose Remote Loss of $1,500,000
Harriott notes there is no entry in the accounting records regarding the effects of the pending litigation. As a result, what type and amount of adjusting journal entry should Harriott propose to Calashni Co.?
A). A loss contingency of $500,000.
B). None
C). A gain contingency of $500,000
D). A loss contingency of $1,500,000
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws