Young Company is involved in a lawsuit.When would the lawsuit be recorded as a liability on the balance sheet?
A)When the loss probability is remote and the amount can be reasonably estimated.
B)When the loss is probable and the amount can be reasonably estimated.
C)When the loss probability is reasonably possible and the amount can be reasonably estimated.
D)When the loss is probable regardless of whether the loss can be reasonably estimated.

Question

Quizplus · Accepted Answer

The liability for a lawsuit should be recorded on the balance sheet when the loss is probable and the amount can be reasonably estimated. This is in accordance with the Generally Accepted Accounting Principles (GAAP) and reflects the company's obligation to pay damages if the lawsuit is not resolved in their favor.

Young Company Is Involved in a Lawsuit